Subsidiary expected to post $352 million in negative for 2002

PARIS — In a replay of angry protests outside Vivendi Universal’s headquarters when Canal Plus Group topper Pierre Lescure was sacked last year, staff from the pay TV arm went on the warpath again last week.

But this time, instead of bemoaning the end of an era, they fear the end of the company is nigh.

The axing of Lescure’s successor, Xavier Couture, and the promotion of chief operating officer Bertrand Meheut by Viv U topper Jean-Rene Fourtou last week was seen as the beginning of the end of a group that was once French broadcasting’s jewel in the crown.

“Nothing can save Canal Plus now,” comments one gloomy staffer. “We are going to be rationalized out of existence.”

Analysts, too, believe the appointment of Meheut signals Viv U’s determination to restructure the loss-making group before selling it off either wholly or in bits. Canal Plus is expected to post 325 million euros ($352 million) in negative earnings before interest and tax for 2002.

Observes Merill Lynch analyst Brett Hucker to Variety: “Vivendi is in a period of transition. 2003 will be a year of shoring up the finances, deleveraging and stabilizing the business. Ultimately Viv U will divest most if not all of its entertainment assets on both sides of the Atlantic. They are reverting to a telco — give it two years.”

Meheut is expected to set the ball rolling by announcing up to 700 layoffs later this month.

“We’ve been warned to brace ourselves for a large-scale redundancy plan,” a union rep says.

However both Fourtou and Meheut tried to quell fears in separate internal memos to staff on Feb. 6.

Fourtou hit out at “the running fire of unfounded rumors designed to damage the Canal Plus Group’s image and even its future.

“Canal Plus is not ‘for sale’ and it still has its place in Vivendi Universal … But it must reorganize to increase productivity and rethink its editorial line.”

Meheut added: “Canal Plus has been shaken a lot in recent months. Now it is time for us to work.”

The most recent events in France kicked off with a headline story in a weekend edition of daily Le Monde at the beginning of the month. Before corporate PR could do anything about it, all Paris knew that former TF1 employee Couture had been given the shove after nine months in the job.

It was common knowledge in Gallic business circles that former agrochemicals boss Meheut, a close ally of Fourtou, had only been waiting for the right moment to seize power.

That moment came with the soccer rights fiasco, which saw Canal Plus successfully bid a gargantuan $480 million a year for TV rights to soccer league first-division games — only to have the Competition Council suspend the deal after complaints from rival pay TV outfit TPS.

Ironically, millions learned of Couture’s sacking from his wife, TF1’s weekend anchorwoman Claire Chazal, the Katie Couric of French television, who looked distinctly uneasy as she delivered the news.

Meheut, the man nicknamed “Pesticide” by hostile Canal Plus staffers is going to have his work cut out.

Priorities include completing outstanding deals to rid Canal Plus Group business units that are costing Viv U dearly.

The group finalized the sale of subsid Canal Plus Technologies last week, bringing in some $206 million. But the European Commission’s competition watchdog still hasn’t given the greenlight to the sale of its Italian paybox, Telepiu, to Rupert Murdoch, which will tack on an unwelcome $238 million in negative earnings before interest and tax to Canal Plus’ books for 2002.

The flagship premium channel is bleeding subscribers — numbers were down some 100,000 in 2002 — while the cost of sports rights and movie costs have spiraled.

With more than half of Canal Plus’ premium channel customers subscribing for the soccer, sorting out the rights row is a matter of urgency.

In the meantime, attempts to revitalize the early evening unencrypted slot, vital for attracting new subscribers, have failed.

The group is expected to announce the arrival of former TF1 programming exec Guillaume de Verges as Canal Plus’ new head of programming next week in a last-ditch effort to put the channel back on track.

Speculation is rife about Canal Plus’ long-term fate, with its sale — once it becomes saleable — considered the likeliest outcome.

Potential buyers, including media and armaments group Lagardere or broadcaster TF1, aren’t in a position to cough up the $7 billion analysts estimate it to be worth.

Meanwhile, neither the group’s financial health nor stock market conditions make its once-mooted flotation an option.

There are also other, potentially more attractive Gallic media assets up for grabs — like the utilities group Suez’s 37% stake in profitable private web M6.

At the same time, parallel talks about merging digital platform Canal Satellite with rival TPS rumble on even as their respective shareholders — Canal Plus and Lagardere in Canal Satellite, TF1 and M6 in TPS — continue to slog it out over soccer rights.

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