Vivendi Shares Take Another Beating

Vivendi Universal’s stock took another drubbing Thursday as investors responded to credit downgrades and fears that the French media conglomerate is running out of cash.

After losing a quarter of its value Wednesday, Vivendi’s stock tumbled 7% to $10.80 a share, down 86 cents, on the New York Stock Exchange. Vivendi’s shares have fallen 80% this year.

On Wednesday, the Paris-based entertainment giant reported a $12-billion loss for the first half of the year, and credit agencies warned the company could face a severe cash crunch.

The financial crisis has placed Vivendi’s fate more than ever in the hands of its French and European creditors--the same banks that played a key role in the dramatic ouster last month of Chief Executive Jean-Marie Messier, whose two-year buying spree of media properties, including Universal Studios, left the company with $34 billion in debt.

“There is no question that Vivendi’s creditors are in the driver’s seat right now,” said Michael Harrington, an analyst with J.P. Morgan in London.

Vivendi’s new CEO, Jean-Rene Fourtou, said Wednesday that he expected to obtain a $2.9-billion loan from a consortium of French and European banks by month’s end to meet its cash needs this year.

Many analysts believe Vivendi is likely to get the financing because of the new management team’s close ties to the French banking industry and the government. The French government, for example, could provide guarantees to the banks to help Vivendi secure the loans.

“Vivendi is probably the most visible global French stock in the world,” Harrington said. “They are not going to let it go under.”

New Vivendi board member Claude Bebear, who played a pivotal role in Messier’s ouster, is well-respected in the French financial community for his years of building Axa, one of the world’s largest insurance companies.

Bebear also is a director of Banque National de Paris, one of Vivendi’s top lenders.

The consortium of banks, which includes BNP Paribas, Societe Generale, Deutsche Bank and Credit Lyonnais, lent billions to fund Vivendi’s transformation from a water and sewage utility into the world’s second-largest media company.

Bebear, Fourtou and fellow board member Henri Lachmann also are close to French President Jacques Chirac, who has declared his support for the new Vivendi management team.

A defiant Fourtou told analysts Wednesday: “I don’t think S&P;’s concerns about our liquidity are founded....The problems that we have will be solved.”

Vivendi desperately needs the $2.9-billion loan because it faces a funding shortfall of about $1.4 billion this year.

The new funding essentially would cover Vivendi’s cash needs through early next year.

But the real crunch will come next year, when Vivendi faces $5 billion in bond payments and other obligations, putting pressure on management to raise cash now by selling assets.

To that end, Fourtou vowed Wednesday to raise $9.8 billion in asset sales over the next two years.

Those sales will include Houghton Mifflin, the Boston-based textbook publisher Vivendi acquired last year, and the non-French assets of pay-TV company Canal Plus.

Fourtou also said Vivendi could unload its 10% stake in American satellite TV company EchoStar Communications Corp., which Vivendi paid $1.5 billion for in December. But the shares can’t be sold until the proposed merger between EchoStar and Hughes Electronics Corp. is resolved. EchoStar’s shares have fallen 38% this year.

On Wednesday, Fourtou also said Vivendi would revert to French accounting standards, which are considered less rigorous than the U.S.’

This year, Messier began converting Vivendi’s reporting to U.S. accounting standards to attract American investors.