Messier Maps Plan to Rebut Allegations

Vivendi Universal’s ousted chairman, Jean-Marie Messier, is marshaling an elaborate response to allegations that he built the company into a global media behemoth by bamboozling investors and even his own board members.

At the center of criminal and civil probes in the U.S. and France are allegations that Messier misled investors by issuing upbeat statements earlier this year that hid Vivendi’s cash crisis, and acted without board approval when he spent billions of dollars to buy back company shares.

With his reputation in the balance, Messier is preparing a detailed rebuttal that focuses on three points, sources close to the former investment banker say:

* In the brief window between Messier’s June 26 assurances that Vivendi faced no liquidity crisis and his successor’s disclosure indicating otherwise, one lender terminated a nearly $1-billion backup credit line and another refused to extend new financing after a $740-million loan matured.

* Vivendi board minutes show that directors approved a plan to buy back up to 10% of the company’s shares and had given Messier authorization to carry out the transactions.

* Vivendi’s new chief financial officer, Jacques Espinasse, told board members at a Sept. 25 meeting that he discovered no evidence of accounting fraud or misleading financial disclosures by the company or its representatives. Messier, sources say, has seized on Espinasse’s findings to bolster his claim that he did nothing wrong.

Although he has not been identified as a suspect or target of the probes, Messier’s actions and financial disclosures during his 18-month reign at Vivendi Universal are at the center of four separate investigations by the U.S. attorney’s office for the Southern District of New York, the Securities and Exchange Commission, French stock market regulators and the Paris prosecutor’s office.

Messier and Vivendi are also named in 16 shareholder lawsuits filed in California, New York and Paris.

Interviews with sources both inside and outside Vivendi, as well as board meeting records obtained by The Times, suggest that U.S. and French prosecutors could face a complex task in building a case against Messier or the company under his leadership.

“This is anything but a clear-cut case,” said securities law specialist Christopher Bebel, a former attorney for the SEC who has consulted for the Justice Department, when told of the response that Messier is apparently preparing to lay out. “It looks like a defense lawyer’s dream.”

Bebel and other legal experts note that it remains to be seen what evidence the authorities ultimately may bring against Messier and any other Vivendi executives, and whether his claims will hold up to their scrutiny.

Messier’s position may be undermined by, among other things, internal documents showing that he repeatedly clashed with Guillaume Hannezo, Vivendi’s former chief financial officer. Hannezo expressed concern as early as last winter over the breakneck pace of Vivendi’s acquisitions and debt, according to records seized by French authorities.

Some investors remain convinced that Messier bears prime responsibility for Vivendi’s woes.

“He took too many risks with the money of others,” said Colette Neuville, who heads a group of minority Vivendi shareholders. “He didn’t give enough information ... about the risks he was taking.”

During his tenure, Messier went on a buying spree that included snapping up Universal’s movie studio, theme parks and record labels. That left Vivendi with a crippling $19-billion media debt load, which helped send the company’s stock price tumbling more than 75%.

The vice chairman of Vivendi’s board, Edgar Bronfman Jr., whose family is the largest single investor in the company and who led the boardroom coup against Messier, declined to comment. In the past, though, Bronfman has made it clear that he too feels betrayed by the 45-year-old former executive.

But Messier’s European attorney, Olivier Metzner, said he is confident that Messier will be vindicated.

“They don’t really know what they’re looking for. It’s kind of looking like a fishing expedition,” Metzner said of the probes. “We’re expecting the investigations in France to establish that all of the accusations made against Messier were ill-founded.”

Messier, who is said to be close to hiring a U.S. criminal defense lawyer, declined to comment. At a recent news conference to promote his new book, however, he was defiant.

“Vivendi is no Enron,” he said, referring to the fallen U.S. energy trader, “so I am not afraid to go to jail. Let the judges do their job.”

A Vivendi Universal spokeswoman would say only that the company is cooperating fully with the investigations.

U.S. authorities are apparently seeking to determine whether Vivendi and its officers violated the anti-fraud provision of the Securities and Exchange Act of 1934. The provision prohibits a company or its representatives from concealing material information that would have affected investors’ decisions on whether to buy or sell the company’s stock. Violators face up to 10 years in prison and a maximum $1 million in fines. A company can be fined up to $2.5 million.

Authorities aren’t commenting on their probes, but sources familiar with the investigations say they are concentrating on what Messier and other officers knew about the company’s liquidity crisis, when they knew it and what they conveyed to shareholders.

Investigators are expected to pay special attention to Messier’s actions after emerging from a tumultuous June 25 board meeting. In a detailed statement he issued the next day, Messier said, “Vivendi is confident of its capacity to meet its anticipated obligations over the next 12 months.”

During a conference call with analysts later that day, he downplayed market fears that the company was in a cash crunch.

But less than a week later, Messier was forced out by the board and replaced by a new chief executive, Jean-Rene Fourtou. Within hours of taking over the helm, Fourtou learned that he faced “a terrible liquidity crisis,” he would later tell analysts.

“If Mr. Messier had stayed, the company would have gone bankrupt in 10 days,” Fourtou also told French officials in a government hearing on Vivendi’s fall.

Certainly, there was evidence at the time Messier delivered his statement that Vivendi was facing possible cash problems. At the June 25 meeting, for example, the board hotly debated a Goldman Sachs report on the company’s financial situation that laid out various scenarios, including one that warned Vivendi could face serious financial problems if it could not sell assets or issue bonds.

But Vivendi’s financial picture grew far more bleak in the days after the board meeting and the sanguine outlook delivered by Messier. Messier is expected to argue that he could not have foreseen the dramatic changes that were about to unfold.

Less than a week after his June 26 statements, German lender Bayerische Landesbank rescinded a nearly $1-billion backup line of credit to Vivendi, a bank source familiar with the matter confirmed.

Making matters worse was the refusal by the British bank Barclays to extend new financing after a $740-million line of credit matured. There are conflicting reports of when that refusal came. A source at Barclays said it was June 24. Another Vivendi document puts the date at June 28. Either way, two sources close to Vivendi’s former management team say that Hannezo, the former chief financial officer, did not alert Messier that negotiations to extend the loan had failed until Messier’s ouster on July 1. Hannezo declined to comment.

Meanwhile, Vivendi’s top lenders, including Deutsche Bank and BNP Paribas, also were unwilling to provide any new financing amid the boardroom turmoil, according to banking and company sources.

“The banks just didn’t trust Messier, and they were not confident that he had the right strategy,” said one European banker close to Vivendi. “They were just not prepared to lend fresh money for his business.”

A spokesman for Deutsche Bank declined to comment. Officials at BNP Paribas couldn’t immediately be reached. But Messier, sources close to him say, contends that he wasn’t aware of this situation until after he had issued his statements on June 26.

Simon Murray, a private equity investor based in Hong Kong and a former Vivendi board member whose tenure as a director overlapped with Messier’s, says he is convinced that Messier was truly in the dark about the banks’ actions.

“I don’t think Messier was aware that the banks were going to pull the plug,” Murray said.

The final blow came on July 1 when Moody’s Investor Service downgraded Vivendi to “junk” status, questioning its ability to reduce debt as planned.

The timing could work in Messier’s favor, said Bebel, the securities law specialist: “If the company’s financial status declined markedly in the wake of his statement, it makes it a tougher case for the government.”

Authorities also are investigating allegations that Messier concealed from board members and Hannezo about $6 billion in purchases of Vivendi stock that he oversaw in 2000 and 2001.

Metzner, Messier’s attorney, counters that the board was fully apprised of his client’s actions, noting that the purchases were part of a plan formally adopted by shareholders in 2000. The plan outlined specific goals, including buying back shares to stabilize their price and for use in acquisitions and employee stock options.

In December 2000, the board gave Messier the specific authority to carry out that plan. In June 2001, Messier and Hannezo updated the board on the progress of the share buybacks, records show. The company also filed monthly reports of its share purchases with France’s stock market regulator, Metzner said.

“The board of directors cannot argue that they were unaware of Messier’s actions,” Metzner said.

Murray, the former director, agrees. Messier can be criticized for “his enthusiasm, his ego and for growing the company too fast,” Murray said, “but not on grounds of misleading the board.”

Other Vivendi directors, for their part, say they still felt blindsided to learn that billions of dollars were being spent to buy shares, adding to the company’s already significant debts, according to sources close to the board.

They contend that it was Messier’s obligation to consult with them more fully about the program and its repercussions.

In addition, Hannezo sharply disagreed with Messier on the wisdom of the share buybacks, and at one point he established procedures in his department to prevent Messier from placing orders. The former CFO eventually reached a compromise with Messier to curtail the costly share buybacks, sources close to the former management team say.

In his new book, “My True Diary,” Messier said none of Hannezo’s warnings went unheeded and that he respected his provocative style. The two, who both worked at the French finance ministry in the 1980s, have been friends for years.

Messier does concede in his book that he made mistakes at Vivendi, including overextending the company with too many acquisitions and drawing too much attention to himself and his jet-set lifestyle straddling Paris and New York.

But Messier largely blames his demise on market rumors and a coterie of influential French businessmen who were offended by his Hollywood lifestyle and his perceived slights toward French culture.

As for his own conduct, Messier makes no apologies, asserting in the introduction of his book: “I have nothing to hide.”