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VIVENDI
Vivendi seemed to burst into U.S. textbook publishing with its 2001 acquisition of Houghton Mifflin. Actually it had been buying up smaller educational publishers for several years. By John Vivian
| Investors in the 1990s knew Paris-based Vivendi mostly as a cash-generating builder and operator of municipal water systems. It was good at that. Over the years it had stretched its business and expertise overseas, not only in utility systems in the Middle East and Asia but into things like garbage disposal in Colombia. The genius behind the Vivendi was Jean-Marie Messier. With an advanced business degree from a French university and an affable personality, Messier made deals that put the company on multiple fast tracks. |
| Messier attracted U.S. attention in the late 1990s by buying control of the high-visibility Universal-MCA movie and music empire from an heir of the Canadian Seagram's spirits fortune. Under the radar of many people, Messier also acquired the educational units of another company, Cendant, in 1999. Messier renamed the company Knowledge Adventure. Soon Vivendi's expanded its stake in U.S. education publishing. Its stable came to include brands and products that were well established in their niches -- Davidson, Dr. Brain, Educational Resources, Fas-Track Computer, Math Blaster, Reading Blaster, Sierra OnLine, and Syracuse Language. |
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None of this was a surprise to people close to Messier. He already had acquired Havas, a major French publisher that had textbook divisions. He saw himself as a global rival to Bertelsmann of Germany and Pearson of Britain, which already were committed to larger stakes in U.S. media industries.
Vivendi moved beyond its relatively modest stakes in U.S. educational publishing in 2001 by offering $2.2 billion for Houghton Mifflin. The deal had been rumored for weeks, but the final price was more than most analysts expected. The transaction involved $1.7 billion cash plus assuming $500 million in debt. Houghton Mifflin. Educated guesses had been that Houghton might draw $2 billion, tops.
Messier bundled the company's publishing units into a new subsidiary, Vivendi Universal Publishing that includes books, magazines, computer games and a hodge-podge of other activities. He shuffled his North American executives to ease Houghton into the Vivendi operations. For shifted executives back and forth from the movie and music business and the education business. Messier himself, however, was in charge. He bought a $17 million apartment on Park Avenue in New York to be in closer touch with the U.S. investment community.
Not all went well. To attract U.S. investors, he put the company on U.S. accounting standards while simultaenously keeping French books. The dual system boosted the company's debt on some ledgers from $18 billion to, some said, $29 billion. Messier's acquisitions, as diverse as even a Morrocan telephone company and a French television network, had been costly. Then too there was the Enron scandal that, although unrelated to Vivendi, sensitized investors to unusual accounting practices. One report had it that Vivendi was putting 100 percent of French phone company Cegetel in an accounting category called "earnings before interest, taxes, depreciation and amortization" but that Vivendi owned only 44 percent of the company. In the first few months of 2002, Vivendi stock lost 40 percent of its value. Investors were also concerned because Vivendi did not break out the performance of individual operations among its motley holdings in its reports to shareholders.
Too, not everybody understood whether the components of the empire that Messier assembled made sense as a unit. He talked of "synergy" but neve satisfied skeptics that a wireless system in Morocco had any familiar connection with a U.S. book publisher like Houghton.
To address investor concern, Messier, began to untangle the finances of unrelated Vivendi enterprises to give a truer picture of the components' performance. The utility-related enterprises would be separated out as Vivendi Environment and the movie and music enterprises would be Vivendi Universal.
Meanwhile, Messier was looking to increase Vivendi's stake in the profitable French wireless company Cegetel. Vivendi will become "a full media and communications player," Messier kept telling analysts.
Despite Messier's bravado, his vision was unraveling under the financial pressure. In mid-2002 he was sent packing by the board of directors. Under pressure from bankers, his successor, Jean-René Fourtor began diversting components of the company to raise cash. First of the auction block was Houghton Mifflin and sibling companies in the Vivendi Universal Publishing subsidiary. |
See also:
Corporate profile: Vivendi Universal Publishing
SA2 bibliography:
Carol Matlack. "Commentary: Memo to Jean-Marie Messier," Business Week (March 4, 2002), Page 56.
Frank Rose. "Vivendi"s High Wireless Act," Wired (December 2000), Pages 318-333.
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