Former Vivendi Chief Tells Jury ‘Perfect Storm’ Caused Losses

Dec. 5 (Bloomberg) -- Jean-Marie Messier, the former Vivendi SA chief executive officer being sued for securities fraud, told jurors the company’s 89 percent stock drop on his watch was the result of a “perfect storm” and not fraud.

During 12 days of testimony completed this week in federal court in New York, Messier said resigning under fire was “the most difficult decision of my life.”

Messier, 52, is accused of failing to disclose a liquidity crisis at Vivendi and of encouraging subordinates to falsify public financial statements over more than 21 months beginning in November 2000. Messier said, “I had personally totally lost credibility with the markets” by the time of his “forced resignation” in 2002.

Plaintiffs accuse him of failing to disclose obligations the company had that could have cost more than 2 billion euros ($3.01 billion). About 1 million investors are covered by the class-action, or group, lawsuit, and about 60 percent of them are in France, according to the plaintiffs’ lawyers.

Messier, during his 7 1/2-year tenure as Vivendi’s chief, transformed the 149-year-old company from a French water and waste-management utility into an international media giant rivaling Time Warner Inc. Under Messier, Vivendi spent $77 billion on acquisitions that included the world’s largest music company, Universal Music Group.

Vivendi reported a 13.6 billion euro ($20.3 billion) loss in 2001 and had accumulated $28.5 billion in debt.

Positive Statements

At the trial, investors’ lawyers have contrasted negative internal communications among Vivendi executives with Messier’s positive public statements before he left in 2002 at the insistence of the company’s lenders.

Vivendi shares, according to Bloomberg data, fell 89 percent from 84.70 euros on Oct. 31, 2000, to 9.30 euros on Aug. 16, 2002, the period covered by the allegations in the case.

Messier, who also faces criminal charges in France, has denied any wrongdoing. He blamed the stock drop on a “perfect storm” that included a tightening of debt markets, the Sept. 11, 2001, terrorist attacks in the U.S. and a decision by company directors to reject his plan to sell the Vivendi Environmental unit.

“I made business mistakes,” Messier said. “But what this shows is that this was a business story, not a fraud story.”

He testified in New York that his purchases of Vivendi shares were the “exact opposite behavior of someone who would be considering or fearing a decline in the stock price.”

He said he spent 16.8 million euros on Vivendi shares starting in 1995, borrowing 5.3 million euros to help pay for the purchases. Messier said he sold some shares for tax purposes in 2001 and reinvested the proceeds in Vivendi stock.

“I put my family money and a huge personal loan at full risk in order to buy more shares of Vivendi,” he said.

Moroccan King

In his testimony ended Dec. 2, Messier said the two obligations that shareholders accuse him of hiding included a deal to buy 16 percent of a Moroccan cell phone company for 1.1 billion euros from the Moroccan government. Messier testified that he didn’t disclose the so-called put obligation after meeting with King Mohamed VI of Morocco in 2001.

“The king gave me his word the put would never be exercised, so the put did not exist as far as I was concerned,” Messier told jurors. “In Morocco, the word of the king is decisive, as much as a contract.”

Terms Renegotiated

The terms of the agreement were later renegotiated in favor of Vivendi and it bought the 16 percent stake in the Moroccan company, according to Messier.

The other undisclosed obligation, a 600 million euro loan by minority shareholders of a Vivendi unit to the parent company wasn’t reported because, Messier said, “I didn’t believe they could ask for the repayments.”

Messier also testified he didn’t pressure business unit managers to change accounting entries to meet performance targets.

Testimony in the trial began Oct. 6 and is expected to continue for one month more before U.S. District Judge Richard J. Holwell in Manhattan.

Vivendi rose 49 cents, or 2.5 percent, to 20.50 euros in trading in Paris yesterday.

The case is In Re Vivendi Universal SA Securities Litigation, 02-cv-5571, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Ben Bedell in Manhattan federal court at bbedell1@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.