Vivendi 2002

VIVENDI

1. Identify the causes of the Vivendi 2002 crisis. Which strategic decisions brought the company into this situation?

External causes :

At the end of the 90’s, there was an international general optimism on the stockmarket and specially for Internet companies (internet bubble). Messier wants to use this trend, to increase Vivendi’s share price. His goal was to change his group which was a water supplier with low margin and low cash flow into a media company, thinking that it was the future.

Because of September 11th and some others companies finance problems (Worldcom), this internet bubble collapsed

Internal causes :

• Fast internal growth

Seeing the success of their cellphone company SFR (network), the main new strategy was to put network and content together and to add this to Canal+.

Thus, Vivendi bought and over paid Seagram (content), for $34 billions in 2000 and spent another 6 billions to purchase other media companies in a 18 months.

Another mistake was that many of these purchases have been paid in cash, in order to keep control on the group, increasing the deb instead of shares (like AOL). Cash flows generated this old activity have been used to buy companies in this new activities.

• People

One of the main mistakes was to switch from one sector (water supply) to another (media company), not related at all in such a short time. For example, to change people who uses to work for a semi-public company (CGE), acting like civil-servant to « new-economy » people.

Manager’s bonus was also based on wrong bases (Vivendi’s EBIDA), encouraging this constent external growth

It’s also due to the personality of Messier : Megalomaniac (his nickname was MMMM = Me Messier King of the World). He wanted Vivendi to be the biggest. It was also more « trendy » for him to be in the media-internet business than in the water supply.

2. What was the turning point from survival to strategy? Which decisions have resulted in repairing financial and strategic health of the company ?

First and in the very short term, the priority to rescue the company was to improve finance situation urgently, to find cash immediatly in order to avoid cash flow crisis, through a bank loan with a huge interest rate (16%).

Then, by selling activities (90 in 2 years), specially 40% of Veolia environnement, the original core activity as this activity required investment with low cash flow, added to some cost cutting and use « Benefice Mondial Consolide » to save on tax.

The easiest solution would have been to dismantle the group, however Fourtou wanted to save it. While selling activities to reduce financial debt, Fourtou did not fully change Messier’s strategy, he kept network (SFR + Maroc Telecom) and contents (Universal, Canal+, Gamelof).

He decided to focus on SFR who was the cash cow of the group (as main investment to build the network have been made already) and buy the majority of the company.

Investing in video games was one key of Vivendi’s recovery as there was a

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