France Opens Probe Into Vivendi

The Paris prosecutor’s office has launched a criminal probe into whether media giant Vivendi Universal misled investors by falsifying financial results during the last two years.

The prosecutor’s office said that the preliminary inquiry will examine whether Vivendi published “false accounts” for 2000 and 2001 to conceal its financial crisis, which came to a head this summer when the world’s second-largest media company nearly ran out of cash. The investigation also will address whether the Paris-based owner of Universal Studios and Universal Music Group issued “factually misleading outlooks” for 2001 and 2002.

The inquiry is not the equivalent of a U.S. Justice Department probe. Under French law, class-action complaints are handled through the prosecutor’s office, not in the civil courts as in the United States. French authorities are required by law to investigate all but frivolous claims.

Indeed, some close to Vivendi sought to portray the prosecutor’s action as a routine step.

Still, one expert noted that the threshold for successfully lodging a class-action complaint in France is relatively high, and that it’s unusual to have such a high-profile company caught up in a case such as this.

“Such criminal probes at this level are relatively rare,” said Florencio Lopez-de-Silanes, professor of finance at the Yale School of Management. “It’s pretty big.... Vivendi is one of those companies that is a symbol of France.”

The investigation stems from a previously reported complaint brought by a group of French shareholders on July 18 alleging that Vivendi, under former Chief Executive Jean-Marie Messier, issued “false financial information that led to a decline in the stock price.”

If the prosecutor’s office finds evidence of fraud, Messier or other former Vivendi officers could face criminal charges.

Reached while vacationing with his family in Orlando, Fla., Messier declined to comment. In an interview last month he denied misleading investors about Vivendi’s finances and suggested its woes were largely caused by market rumors.

On Tuesday, Messier’s lawyer, Olivier Metzner, said that his client had done nothing wrong. Vivendi Universal spokeswoman Anita Larsen said the company was “cooperating fully with the inquiry.”

The current criminal investigation is similar to an inquiry launched three months ago by France’s stock market regulator, Commission des Operations de Bourse. That probe, expected to be complete by year’s end, also focuses on Vivendi’s financial reporting in the last year, including how it communicated a complex stock deal surrounding the sale of its shares in British Sky Broadcasting Group.

A dozen shareholder lawsuits also have been filed in New York and California, alleging Vivendi and Messier misled investors after issuing a statement on June 26 emphatically denying that Vivendi faced any liquidity problems. Messier -- who had taken Hollywood by storm with his flamboyant style -- was ousted a week later. The new CEO, Jean-Rene Fourtou, then declared that Vivendi was on the verge of default after credit firms lowered the company’s rating to junk status.

Vivendi’s stock has plummeted this year amid concerns over the company’s $19 billion in media debt and doubts about Messier’s growth-by-acquisition strategy to transform a 149-year-old water utility into a global entertainment giant.

The probe comes during a difficult time for Fourtou, who has been working frantically to ease Vivendi’s cash crunch through a series of asset sales, and restore the company’s credibility with U.S. and French investors.

Fourtou is close to reaching a deal to sell U.S. publisher Houghton Mifflin for $1.7 billion to a consortium that includes the private equity investment firm Blackstone Group, sources close to the board say. He also is weighing whether to wage a bidding war with British cell phone giant Vodafone for the French telecom operator Cegetel. Vivendi’s board this week rejected as inadequate a $6.7-billion offer that Vodafone made for its 44% stake in Cegetel.

On Tuesday, Vivendi’s stock fell 95 cents to close at $12.04 on the New York Stock Exchange.