Vivendi Faces Probe by French Regulators
Vivendi Universal achieved a crucial first step toward averting a financial collapse by securing a key deal with its lenders, but the French entertainment giant now faces an investigation into how it has disclosed its complex finances.
The investigation, which centers on whether the company disclosed its liquidity crisis in a timely fashion, will complicate efforts by new Chief Executive Jean-Rene Fourtou to restore investor confidence in Vivendi, whose stock value has fallen 70% this year. Its shares closed down 26 cents to $17.60 on Tuesday on the New York Stock Exchange.
Analysts expressed worries about the timing of the investigation, as investors already are on edge over a wave of accounting scandals involving WorldCom Inc., Adelphia Communications Corp. and Enron Corp.
“This is not a good thing,” said Paul Kim, a senior media analyst with Kaufman Bros. “It adds another level of uncertainty that should throw caution to investors.”
France’s stock market regulator, the Commission des Operations de Bourse, announced Tuesday that it launched an investigation into financial information released by Vivendi since January 2001.
Investigators from the agency visited Vivendi’s Paris headquarters to review the firm’s books.
The cause and scope of the investigation are unclear, but among the key questions investigators will examine are when the company became aware it faced a liquidity problem and how soon it conveyed that to investors, said a source familiar with the investigation.
The commission, which does not have authority to fine companies, refers cases of wrongdoing to public prosecutors.
Gerard Rameix, the commission’s chief executive, described the probe as routine. “This doesn’t mean we suspect wrongdoing. We would do this any time the market is this confused.”
Vivendi spokeswoman Anita Larsen said the company was cooperating fully with the inquiry.
On the same day Vivendi’s board replaced CEO Jean-Marie Messier last week, it disclosed for the first time what Messier had denied: Vivendi faced a short-term cash crunch. It must repay $1.8 billion to lenders by the end of this month, using up most of the $2.4 billion in cash and credit lines it has remaining.
Concerns over its $30-billion debt and more than $1 billion in unexpected liabilities led credit-rating firms Moody’s Investors Service and Standard & Poor’s to downgrade Vivendi’s debt last week. S&P; estimated that Vivendi faced about $6 billion in financial obligations this year, nearly double what most analysts expected.
Moody’s said Monday that it might further reduce the company’s rating to below “junk.”
The investigation was announced the day after Vivendi negotiated a deal for a $989-million loan from six banks, said a source familiar with the loan.
Vivendi, which owns Universal Studios, also is close to securing a $2-billion loan from its banks, giving Vivendi’s new management team enough cash to meet its obligations over the next three months as it evaluates its strategy and decides what units it needs to sell.
The lenders include BNP Paribas and Societe Generale, banks that helped oust Messier by threatening to withhold credit unless he was removed.
“It just gives them a few more months of breathing room,” said George Nichols, an analyst with Morningstar Inc.
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Bloomberg News was used in compiling this report.
