French Fiascoes Make Vivendi Very Careful

The French love movies. But Hollywood’s often-perplexing film business is another story, one that can leave them exclaiming, “Mon Dieu!”

So Vivendi Universal Chief Executive Jean-Rene Fourtou is being very careful as the conglomerate, under the close watch of the French establishment, goes about extricating itself from an industry that has long bedeviled French companies.

Fourtou is under pressure from the host of savvy American suitors who are trying to gain the upper hand in buying Vivendi Universal’s entertainment assets. But he is making clear -- in a way that is angering many bidders -- that he alone dictates the pace, terms and price.

For Fourtou and the French, the stakes are high. “There is clearly a sense of French national pride here that goes along with this,” conceded one Vivendi executive.

Vivendi was a staid, venerable water company when its former chairman, Jean-Marie Messier, embarked on a buying spree in an ill-fated strategy to blend entertainment, telecommunications and technology. With the $34-billion acquisition in 2000 of Seagram Co., which owned the Universal movie studio, theme parks and music group, Vivendi was transformed into the world’s second-largest media company, after AOL Time Warner Inc.

Investors balked. The businesses never meshed as Messier said they would, and the company found itself loaded down with debt. The stock plummeted, and the company’s fall became a national disgrace that triggered alarm at the highest levels of the French government. Messier ultimately was ousted and replaced by Fourtou.

Behind it all lurked a feeling that Vivendi had been snookered into paying far too much for Seagram. Now, with the auction of the U.S. entertainment assets, Vivendi executives are particularly concerned about being second-guessed or steered into anything that potentially could be criticized as a fire sale.

As one source close to the bidding process said, the French are keen on not letting any U.S. bidder be seen as gaining the advantage: “They don’t want it to look like they got pantsed by the Americans.”

Last week, Fourtou spurned Los Angeles studio Metro-Goldwyn-Mayer Inc. after it demanded more detailed financial and contractual information while holding out a sweetened offer of $11.5 billion, up from $11.2 billion, for Universal’s film studio, theme parks and TV operations.

Vivendi countered that the offer was still too low, although sources close to the deal said the two are trying to work out a compromise on the information request.

Those who know Fourtou weren’t surprised by his reaction to MGM’s demand; he had, after all, resisted an earlier ultimatum by suitor Marvin Davis to negotiate exclusively with him. One bidder calls the veteran French businessman “the anti-Messier,” with a go-slow approach that is intentionally the mirror opposite of Messier’s hyperkinetic style. Fourtou’s moves have only solidified his reputation as a wily negotiator and a pragmatist.

“He hates to be cornered,” said Michel De Rosen, a French businessman and close friend of Fourtou. “He always wants to have options.”His approach has infuriated some of the bidders and bankers involved in the auction.

Fourtou has slowed the auction’s timetable, canvassed for potential new bidders such as Viacom Inc., rejected offers he deemed too low and spurned demands from buyers, including MGM and Liberty Media Corp., for exclusive negotiating rights. He and his executives also have suggested that if bids were inadequate, Vivendi might pull its for-sale sign and spin off a portion of the assets to the public via a stock offering.

Fourtou’s gambit is to keep as many players in the ring as possible to create a bidding war, so that Vivendi’s beleaguered shareholders can get the best possible deal and recoup some of the huge losses they sustained under Messier.

Suitors complain they’ve received conflicting information about the company’s intent and timeframe for receiving a second round of bids. At one point, for example, Vivendi said Universal Music Group was up for grabs. Then, it abruptly removed the unit from the auction block and told suitors to adjust their bids accordingly.

Auction observers say Vivendi executives may be inexperienced when it comes to the kind of asset auctions American companies find routine. They caution that Fourtou risks chasing bidders away.

“It’s like walking into Sotheby’s and someone has an armload of things in their hands and you don’t know if they’re auctioning what they’re holding up in their right hand or the pile of stuff in their left hand,” said Jeffrey Sonnenfeld, associate dean of the Yale School of Management. “It’s atypical and chaotic. I don’t think the French are as comfortable with the kind of transparent auction process” that is standard in the U.S.

MGM, Liberty and Viacom are joined by three other suitors: General Electric Co.’s NBC and two investment groups, one led by Vivendi Universal Vice Chairman Edgar Bronfman Jr. and the other led by Davis, a billionaire oil tycoon.

Making it easier for Fourtou to dig in his heels is the easing of the desperation that hung over the company last year. Vivendi has revamped its balance sheet and no longer faces the cash squeeze it once did.

Also strengthening Fourtou’s hand is that Vivendi Universal’s businesses continue to perform reasonably well even though they never produced the kind of synergies Messier promoted. Its Universal Studios unit claims such recent hits as “Bruce Almighty” and “2 Fast 2 Furious.”

Some bidders contend that Vivendi’s French stewards are toying with them because they have a suspicion of American media moguls.

That suspicion has been fueled by recent legal fights with the likes of former Vivendi Universal Entertainment Chairman Barry Diller and media tycoon John Malone, who heads Liberty. There has been some speculation on Wall Street that Diller -- who has had a falling out with Fourtou and holds key restrictions on the sale of the assets -- may team up with Malone and possibly Viacom to make a play for the Vivendi units.

Others say Vivendi remains singed by the Messier experience, France’s latest troubled venture into Hollywood.

In the early 1990s, one of France’s biggest business scandals erupted around French bank Credit Lyonnais, which funded scores of movie companies that eventually unraveled, among them Weintraub Entertainment, Hemdale Corp. and Carolco Pictures.

Credit Lyonnais’ problems culminated in a grandiose way when it ended up as a studio owner after foreclosing on MGM. Fugitive Italian financier Giancarlo Parretti, whom Credit Lyonnais bankrolled despite Parretti’s extensive criminal record, couldn’t pay his loans as MGM’s owner.

Credit Lyonnais was stuck with MGM for four years, pouring money into the studio until finally selling it for $1.3 billion to billionaire Kirk Kerkorian, who is using MGM to bid for the Vivendi assets.

Likewise, French pay-TV giant Canal Plus, later acquired by Vivendi, for years has stumbled with a number of ill-fated movie financing efforts, ranging from bankrolling such duds as “Memoirs of an Invisible Man” to forging a film venture with former agent Michael Ovitz that never lived up to its hype.

Vivendi, and Fourtou, had nothing to do with these financial flops. But one Vivendi executive said the company is mindful of these missteps as it proceeds: “They want to create a success and not another failure.”

Times staff writer Meg James contributed to this report.