Conglom hit by downgrade, accounting allegations
This article was updated at 9 p.m.
PARIS — What should have been a celebration among Vivendi Universal investors ended up a washout.
Though Viv U shares rallied Monday in the wake of the announcement that Jean-Marie Messier was poised to resign as chairman and CEO of the media conglom, by Tuesday afternoon the shares closed down 21% in New York and more than 25% in France following a bond rating downgrade to junk status and new reports of accounting irregularities.
Trading was halted repeatedly on the Paris Bourse as the stock plunged more than 40% at one point, before recovering somewhat by the end of the day.
In contrast, trading in New York was fairly even throughout the day, with the shares opening at about $18, down from Monday’s close of $22.45, and ending at $17.76. Trading was halted for about a half-hour while the company prepared a response to the accounting irregularities report.
As Wall Street socked Viv U in the kisser — rating agency Moody’s downgraded the company’s debt to “junk” status — the French press stomped the company while it was down.
French daily Le Monde reported in its Wednesday edition that the company tried to beef up its 2001 accounts by $1.5 billion in a highly complex — and potentially irregular — transaction involving the sale of its BSkyB shares. Le Monde reported that Viv U’s efforts to thus distort its accounts failed when an outside accountant alerted French regulators, who stepped in and halted the move.
The accusation, though quickly denied by Viv U, nevertheless stirred investor fears that America’s corporate accounting contagion may have spread across the Atlantic.
Viv U in a statement Tuesday vehemently denied any such wrongdoing and noted it met with reps from the U.S. Securities and Exchange Commission and France’s Commission de Operations de Bourse to make sure the deal squared with both U.S. and French accounting rules.
But the Le Monde article was enough to cast doubts on the group’s accounting practices and prompt investors who hadn’t already dumped the stock to run for cover.
“European investors are starting to realize that they’re not immune to the threats of questionable accounting that have been roiling the U.S. markets,” said UBS Warburg media analyst Christopher Dixon. “Clearly, investors are voting with their feet.”
The Moody’s downgrade — and a similar downgrade by Standard & Poor’s to one notch above junk — will make it much more expensive for Viv U to borrow money in the future.
The downgrades couldn’t have come at a worse time for the battered conglom. Viv U had hoped to refinance some of its $34 billion debt load with new issues, but such a deal now looks next to impossible.
The junk rating could also speed up and/or broaden the scope of expected asset sales, as the company’s credit situation becomes more urgent.
Speculation abounds about what businesses will be sold to whom, and at least in Hollywood there’s intense interest over who could end up owning the Universal studio.
Barry Diller, now topper at the Viv U Entertainment unit, could put together a U acquisition. But some sources dismiss such talk, with former Viv U vice chairman Edgar Bronfman Jr. mentioned as another potential U buyer, backed by his family’s billions.
Reports also emerged Tuesday that Messier was in personal debt to the tune of $25 million, which he allegedly borrowed to invest in Viv U shares. Messier apparently wants to be able to walk from Viv U without taking that debt with him.
The Viv U board meets in Paris today to officially oust Messier, who has refused to resign, preferring to put his fate in the hands of the board members.
At that meeting, in all probability, Jean-Rene Fourtou, vice chairman of the supervisory board of the French-German pharmaceutical giant Aventis, will be confirmed as Messier’s successor.