Acquisition Spree Leads to Big Loss for Vivendi

Vivendi Universal on Tuesday reported an $11.8-billion loss for 2001, the largest in French corporate history, as it wrote down the costs of a string of acquisitions that built it into the world’s second-largest media company.

The loss contrasts with a net profit of $2 billion in 2000.

In the last 18 months, Vivendi Chief Executive Jean-Marie Messier has turned a sewage disposal and water company into a rival of AOL Time Warner Inc. by acquiring Universal and European cable TV giant Canal Plus. Vivendi is close to buying the TV and film assets of USA Networks Inc.

But as the 149-year-old Vivendi shifts to U.S. accounting rules this quarter to build its profile here, the company has faced growing scrutiny by analysts and investors who have grown impatient with its complex balance sheet and the French accounting methods it uses. Wall Street analysts also have started to complain that Vivendi needs to show how the various pieces of its expanding empire will fit together.

American accounting rules now require companies to immediately write off “goodwill”--the difference between the price paid for an asset and its book value--if it is clear that the asset’s value has declined significantly.

Vivendi said it wrote off $13 billion in goodwill last year, reflecting lowered values for various acquisitions. Vivendi “is cleaning up their house after having overpaid when valuations were sky-high,” said Valerie Cazaban-Levy, an investment manager at Stratege Finance.

Vivendi shares closed down 44 cents Tuesday to $41.25 on the New York Stock Exchange. The stock has fallen 23% this year.

At a news conference Tuesday in Paris, Messier downplayed the significance of the write-down, calling it a “bookkeeping concept.” The company’s books are “totally transparent,” he said.

Messier added that it is “unacceptable that hedge funds should really make a bundle off our shareholders just by circulating [rumors] in the marketplace....To avoid that, we’re going to full disclosure.”

“Messier is making a better effort in terms of addressing investors’ concerns, but the company’s debt level is still a concern

Messier said in an interview that he planned no additional acquisitions this year and that he would reduce the company’s debt, about $16 billion for media and communications, to maintain its credit ratings.

The 2001 write-off skewed an otherwise strong year driven by gains in telecom and film, Messier said. Vivendi’s earnings before interest, taxes, depreciation and amortization in its media and communications businesses rose 34% last year to $4.4 billion. Universal Studios was helped by such box-office hits as “Bridget Jones’s Diary” and strong video and DVD sales for “The Grinch” and “The Mummy Returns.”

Declines in attendance at the company’s theme parks in Universal City and Orlando, Fla., after Sept. 11 were offset by a strong debut for its park in Osaka, Japan. And best-selling albums from artists such as Shaggy and Limp Bizkit helped Universal Music Group gain market share in a down market, Messier said.

He predicted that the company would boost operating cash flow to $5.2 billion and achieve 10% revenue growth in 2002, citing gains in music, publishing and theme parks, which have seen a slight increase in attendance this year.

“I think it will be difficult for Vivendi to meet such ambitious sales and [earnings] targets, particularly considering the weakness in music, pay television, theme parks and the retail business,” Harrington said.

Since moving to New York last September, Messier has been working to win over U.S. investors to his ambitious strategy of building a global media giant. He also has bought American book publisher Houghton Mifflin, online music company MP3.com and announced plans for an 11% stake in satellite TV provider EchoStar Communications Corp.

Yet Messier’s strategic plays in the U.S. have failed to win converts on Wall Street. In January the company’s plan to raise $3 billion from a stock placement stumbled as underwriters were unable to find institutional buyers for all 55 million shares.

Vivendi’s woes have been compounded by a series of complex transactions that have made the company’s balance sheet even harder to understand. Under French accounting rules, companies can reduce their debt with various credits, including treasury shares, vendor financing and short-term loans. Such offsets are not allowed under generally accepted U.S. accounting rules.

The different accounting rules have yielded substantial balance sheet adjustments, said Michael Nathanson, an analyst with Bernstein Research. For example, Vivendi reported a total net debt of 23.5 billion euros as of June 2001, when the debt figure by U.S. standards would have been closer to 33 billion euros, Nathanson said.

Times wire services were used in compiling this report.