Under Intense Pressure, Vivendi’s Messier Is Forced Out as Chairman

Vivendi Universal Chief Executive Jean-Marie Messier, who stormed Hollywood two years ago with grand plans to turn a sleepy French water utility into a global media powerhouse only to watch his empire suffer record losses, has succumbed to a coup engineered by investors and board members.

Messier’s departure played out like a boardroom melodrama whose resolution is expected to come Wednesday, when the company’s board of directors will formally approve his ouster at an emergency meeting, said a source close to the board. The top candidate to replace him is Jean-Rene Fourtou, deputy head of the Franco-German pharmaceutical company Aventis.

As a final act of defiance, Messier was said to be haggling over the terms of his ouster, ending a tumultuous two-year run as head of Vivendi Universal.

“I forged this group with my team. I love it passionately. But one truth is unavoidable. You can’t manage with a divided board,” Messier told France’s Le Figaro newspaper.

That division was especially pointed for Messier, who himself tried to bridge two distinct cultures. He set up a posh office in New York City and relished playing the role of Manhattan philanthropist while struggling to maintain the French identity of his company.

In the end, he satisfied few.

The change in leadership could have dramatic implications for Universal Studios. Vivendi board members also have had discussions about whether to spin it off into a separately traded company, in part to distance it from a company whose growth strategy--combining wireless technology with entertainment--puzzled investors and analysts alike.

Vivendi is the third foreign-owned company that has struggled to fit Universal Studios into its fold, after Japan’s Matsushita Electric Industrial and Canada’s Seagram Co.

The boardroom coup was led by the company’s single largest shareholder, the Bronfmans, who personally asked Messier to resign as chairman and CEO, according to a source close to the board. But they and others asked Messier over the weekend to either resign or face an emergency meeting.

The Bronfmans and a family representative, who together hold three seats on the 14-member board, have seen their holdings lose more than $1 billion since they sold Seagram and its Universal Studios movies, music and theme park properties to Vivendi two years ago.

They were infuriated last week when Messier managed to survive a vote of confidence thanks to the support of nine French and European backers who, despite being disenchanted with Messier in recent months, were reluctant to side with the Bronfmans out of concern that Messier would not be replaced with a fellow Frenchman.

But one by one, those same French board members turned on Messier at the urging of Claude Bebear, the influential chairman of insurer Axa and a fierce critic of Messier’s.

The 45-year-old executive was once the toast of France and a symbol of French pride as he pulled off the high-profile acquisition of one of America’s most famous film studios, Universal Studios, as part of a $34-billion acquisition of Seagram and Canal Plus in December 2000.

But Messier’s attempt to build a European rival to AOL Time Warner Inc. failed on both sides of the Atlantic. Amid poor communications with investors, concerns about the viability of his strategy and in the face of massive debt, the stock plummeted to a 13-year low last week.

Investors initially embraced the news, although their optimism was tempered by news that the company’s debt rating was downgraded to junk status by Moody’s Investor Service out of concern the company won’t be able to reduce its debt as planned.

Vivendi shares rose $2 at one point Monday before closing at $22.45, up 95 cents, on the New York Stock Exchange.

“Investors are welcoming this with open arms,” said George Nichols, an analyst with Morningstar Inc. in Chicago.

Although the suddenness of Messier’s departure startled some company watchers, the momentum to remove him clearly had been building for months.

It began with basic doubts about Messier’s frenzied deal making. A former investment banker, Messier has been on a buying spree during the last two years, spending more than $50 billion to transform a 149-year-old French water utility into one of the world’s largest entertainment companies.

In addition to buying Seagram’s Universal music, movie and theme park properties, Vivendi acquired European pay television and movie production company Canal Plus, U.S. education publisher Houghton Mifflin, online music service MP3.com and the film and television businesses of USA Networks.

An apostle of the convergence between new and old media, Messier also believed that cell phones and the Internet would be key pipelines for movies, music and games.

But that strategy flopped on Wall Street.

“The message hasn’t been clear or justified,” said Mark Harrington, an analyst with J.P. Morgan Chase. “There was a high degree of confusion over what the strategy is.”

Messier made too many bets on the digital future rather than developing a single, coherent strategy, said George T. Geis, an adjunct professor at UCLA’s Anderson School and co-author of “Digital Deals.”

Messier was particularly interested in delivering media wirelessly to mobile devices, a capability that’s just starting to emerge as wireless networks expand in capacity.

“Messier thought it was going to be big soon, and it’s not going to be big soon,” Geis said.

Beyond doubts about his strategy, investors also began to distrust Messier when they had trouble figuring out Vivendi’s net debt as the company moved from French to American accounting standards. Investors were further spooked by disclosures of unexpected liabilities that could cost the company more than $1 billion.

While Messier was struggling to build his profile in the U.S., he managed to alienate the French establishment that once saw him as a corporate leader.

The ill feeling began when Messier openly criticized the death of France’s system of film subsidies for French cinema, a touchy subject because Vivendi’s Canal Plus TV is a major financier of French movies.

Messier only added fuel to the fire when he dismissed popular executive Pierre Lescure for failing to stem losses at Canal Plus. Though welcomed by U.S. analysts, the move enraged the French cultural elite and Canal Plus employees, who staged protests at the company’s shareholders meeting and lampooned Messier in a nationally televised satirical puppet show.

Although he survived the protests, Messier’s handling of the L’affaire Lescure, as it came to be known, was among the factors that cost him key political support from some of his French allies, including luxury goods mogul Bernard Arnault, who resigned last week and had been a buffer against Messier’s American critics on the board.

The CEO appeared to win a reprieve in May, when the board gave him a mandate to slash the company’s debt and created a committee, co-chaired by Edgar Bronfman Jr., to monitor his stewardship.

The final straw came in the last month, when French and American board members were incensed over Messier’s handling of a key transaction to reduce a stake in its water utility, Vivendi Environnement, and a complex stock repurchasing deal with Deutsche Bank.

Both transactions fueled concerns that the company was facing a cash crunch and sent Vivendi’s stock price crashing.

The company denied facing a liquidity crisis.

The new management team could ultimately force the breakup of the company into French and American divisions, analysts said. One scenario considered by the board would split Vivendi’s European businesses--Canal Plus and a 44% stake in the French telecom firm Cegetel--from the company’s American assets, primarily Universal Studios and Universal Music Group, the world’s largest music company.

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It is tough to find buyers for a big studio and a music business today, with both industries suffering, said Paul J. Kim, entertainment analyst at Kaufman Bros. in New York.

“The balance sheet will determine everything they do for the next year, probably longer,” Kim said.

Times staff writers Thomas S. Mulligan, Corie Brown and Jon Healey contributed to this report.