Vivendi Shares Hit Low on Stock Deal
Vivendi Universal’s shares tumbled to their lowest level in more than five years Friday after Deutsche Bank disclosed a complex stock repurchase plan with the French entertainment company.
In a deal reported to French market regulators Thursday, Vivendi sold 12.7% of its water utility, Vivendi Environnement, to Deutsche Bank on June 12 on the condition the entertainment giant buy back the shares at a later date.
Such stock repurchase agreements allow companies to raise cash by borrowing money against the value of their shares. Vivendi said Friday it was getting financing at a favorable rate.
The unusual transaction fueled speculation among some investors and analysts over whether Vivendi Universal was facing a cash squeeze.
Investors also wondered whether the arrangement would delay plans, approved by Vivendi Universal’s board on Monday, to sell 15% of Vivendi Environnement to reduce the parent company’s hefty $30-billion debt load.
Vivendi wouldn’t say how much it raised from the sale.
The company said it still has 3.3 billion euros in available credit from banks.
Such assurances didn’t sway investors who on Friday bailed out of companies with high debts and complex accounts in a broad sell-off in Europe. Vivendi Universal’s shares on the Paris Bourse fell 8% to their lowest level since September 1996.
On the New York Stock Exchange, Vivendi’s American depositary receipts fell $2.11 to $23.21. Vivendi’s shares have fallen 57% on the NYSE this year.
“Their track record is one that people just don’t believe what they say,” said Michael Nathanson, an analyst with Sanford C. Bernstein, citing $1.3 billion in off-balance-sheet liabilities that Vivendi disclosed earlier this year.
“We as investors don’t want to see any more complicated deals ... with Vivendi,” Nathanson said.
The stock repurchase may delay Vivendi’s plan to give up control of its utility subsidiary but doesn’t necessarily mean the company is in a cash crunch, said Neil Blackley, an analyst with Merrill Lynch. Credit rating agency Standard & Poor’s recently removed Vivendi from its negative watch list.
“They’ve given them a clean bill of health,” he said.
