Quote:Vivendi Abandons Broken Hollywood Dream
Tue April 29, 2003 06:47 PM ET
By Tim Hepher and Merissa Marr

PARIS (Reuters) - Giant media company Vivendi Universal EAUG.PA V.N officially hoisted a for-sale sign over its American entertainment empire on Tuesday, smashing the Hollywood dream of a French firm that slid from boom to near-bust.

Almost a year after the ouster of ex-Chief Executive Officer Jean-Marie Messier, who turned Vivendi from a water company into a media titan with huge debts, the veteran company fixer brought in to replace him pulled down the curtain on a three-year dalliance with Tinseltown.

Current CEO Jean-Rene Fourtou said Vivendi's future lay in telecommunications and French television -- not Hollywood -- telling shareholders it was "illusory" to think Vivendi could run a U.S. empire spanning Universal studios, theme parks and cable television from Paris.

Setting out a strategy in the boldest terms since he arrived last July, Fourtou told Vivendi's annual general meeting that the computer games business would also be sold, but that music may still be a part of Vivendi next year when he hopes to have finished his restructuring job.

Firming up the company's previous line that Vivendi had been approached about its Hollywood interests and was open to offers, Fourtou said the Paris-based group was already in talks with potential contenders for all or part of the U.S. media business.

Fourtou had been under pressure to spell out Vivendi's strategy after a string of asset sales since Messier fell to a boardroom coup last July. Vivendi's debts have fallen sharply since he took over, and Fourtou said he expected the company to be practically debt-free by the end of 2004.

Facing shareholders for the first time, Fourtou fended off outbursts from investors who have seen their shares plummet.

"I kept buying shares for a bit more, then a bit more, because Mr. Messier made me dream of cinema and more besides. Then it was all a catastrophe.... Can you give me back my dream?," one shareholder asked.

"(In) 2004," Fourtou replied.

FOURTOU EXIT?

Fourtou said it would take two years to unravel Messier's mess. But Fourtou, brought out of semi-retirement to run Vivendi, hinted that when the job of restructuring was over, his own role would be finished too.

Fourtou said Vivendi would likely have a new management team by the end of 2004.

"It will be in the autumn of 2004 that the market will be able to appreciate the true value of the group," he said.

Declaring healthy finances his first priority, Fourtou told the annual meeting he believed Vivendi could go further than its target of selling 7 billion euros in assets in 2003, especially if the group sold all or part of its U.S. assets.

Vivendi's U.S. retreat marks the second time French ambitions have tripped up on Hollywood's "boulevard of broken dreams." French bank Credit Lyonnais CRLP.PA made a disastrous investment in MGM studios in the 1990s.

Messier bought the Universal films and music empire from Canada's Bronfman family to forge the world's second-largest media firm in 2000, renting part of the Louvre Museum to celebrate France's biggest transatlantic business coup.

But the dream turned sour after frenzied deals done at the top of the market amassed more than 20 billion euros of media debt and left Vivendi teetering on the edge of bankruptcy.

"It is illusory to believe that we can manage and develop (the U.S. entertainment assets) by ourselves," Fourtou said.

Vivendi reacted coolly when Los Angeles-based billionaire Marvin Davis offered $15 billion for all its U.S. entertainment assets last year, but one U.S.-based source familiar with the talks said Davis "remains a leading contender."

Other reported suitors for Vivendi Universal Entertainment include huge media company Viacom Inc. VIAb.N , the NBC television network owned by General Electric Co. GE.N , and cable TV magnate John Malone's Liberty Media Corp. L.N .

A source close to the talks told Reuters in London that any deal on Vivendi Universal Entertainment would not happen until June at the earliest.

"This is a summertime deal," the source said.

Vivendi shares closed up 1.4 percent on Tuesday at 14.3 euros. They have risen about 50 percent from their lowest point last year, but are little changed from when Fourtou came in.

FUTURE IN MUSIC

Faced with dire conditions in the music industry, Fourtou said Universal Music would probably be part of the Vivendi he envisaged for 2004, either as a whole or in a partnership.

Sources close to the matter say Vivendi is leaning toward holding on to Universal Music Group, in which U.S. computer firm Apple Computer Inc. AAPL.O has been reported to be interested.

However, Fourtou said telecommunications was where the real cash was.

If Vivendi managed to sell Vivendi Universal Entertainment, Fourtou said the group would boost its stake in Morocco's Maroc Telecom, even though it bought its 35 percent stake at an inflated price.

In December, Fourtou increased Vivendi's stake in French telecoms business Cegetel, parent of mobile operator SFR.

"My immediate conclusion was that if we kept anything it would be this excellent activity," he said.

On the computer games unit, Fourtou said he wanted to sell the business but first needed to consider whether it would be better to wait until the market improved or to just find a partner.

Most analysts were comforted by the strategy.

"It surprised me the extent of detail that Fourtou gave. I was half expecting him to continue his strategic ambiguity, but he was under a lot of pressure from shareholders," said Mark Harrington, analyst at Bear Stearns in London. (Additional reporting by Tom Bergin, Noah Barkin and Reshma Kapadia)

Quote:But that is scary for two reasons. First because it helps Microborg in its unending attempt to take over the universe of software, and second because it will invariably mean that games will be designed to fulfill the Microsquish "broadest possible appeal".