Vivendi’s Fourtou Goes Back to Future With Ouster of Levy
Vivendi SA (VIV) Chief Executive Officer Jean-Bernard Levy’s ouster, triggered by a clash with the board over strategy, clears the way for a potential reorganization of Europe’s biggest media and telecommunications company.
Levy’s departure after seven years at the helm followed months of tension with Jean-Rene Fourtou, who has chaired Vivendi since 2002, according to people familiar with the matter. The disagreements, which centered on 57-year-old Levy’s resistance to turnaround scenarios including major asset sales or a breakup, peaked at an executive meeting last weekend, they said, asking not to be named because the matter was private.
Fourtou and interim chief Jean-Francois Dubos now face the task of reviving Paris-based Vivendi’s stock price, which reached a nine-year low in April. They will have to give new direction to a diverse group of assets that includes SFR, France’s second-biggest telecom operator, and Activision Blizzard Inc. (ATVI), the world’s largest video-game company.
“Investors over the past year have voted with their behavior, and they were unhappy,” said Claudio Aspesi, an analyst at Sanford C. Bernstein & Co. in London. “It’s not clear why Vivendi needs to exist as a company, and there’s a case for selling off all of its assets. But that strategy takes time and carries some risk.”
Vivendi shares have risen about 8 percent in Paris since Bloomberg News reported yesterday that Levy was preparing to step down, and rose 3.1 percent to 14.63 euros today.
The stock reached a nine-year low of 12 euros on April 19. It’s still down 13 percent this year through yesterday, giving the owner of Universal Music Group and phone companies in France, Morocco and Brazil a market value of 18.3 billion euros ($23 billion). Vivendi confirmed Levy’s departure in a statement after the market close.
Analysts at JPMorgan Chase & Co. and Nomura raised their ratings following the news. JPMorgan’s Filippo Pietro Lo Franco, in a note titled “The story has changed,” estimated that Vivendi’s stock price may reach 16.90 euros.
Another global media company this week bowed to shareholder pressure for changes. News Corp., the media empire controlled by Rupert Murdoch, said it plans to separate into two units after its board approved a split of publishing assets from entertainment businesses. Its stock gained 11 percent in the two days after a June 26 announcement confirming it was considering the breakup.
Pressure on Levy mounted over the past weeks as Vivendi’s long-running board members Claude Bebear and Henri Lachmann, who were directors when former CEO Jean-Marie Messier was pushed out 10 years ago, also expressed dissatisfaction, one of the people said.
Fourtou has stepped in to turn Vivendi around before. He engineered the 2002 boardroom coup that ousted Messier, whose acquisition spree transformed the one-time water utility into a global media giant with a significant presence in Hollywood -- and nearly led to its bankruptcy.
For years, investors have called for an overhaul of Vivendi’s holding company structure, which they say makes the stock trade at a discount to the value of the company’s assets. Since Fourtou told shareholders in April that he would tackle this “gigantic” conglomerate discount, discussions have intensified over a potential split between content-production and telecommunications operations, the people said.
A sale of part or all of Vivendi’s stake in Activision, the Santa Monica, California-based maker of video games like “Call of Duty” and “World of Warcraft,” have also been considered, along with a possible spin-off of the Canal Plus pay-TV operator, they said.
At the same time, Fourtou is now interested in exploring a de-emphasis of Vivendi’s telecommunications businesses, which he believes require too much investment to be successful and lack scale, two of the people said.
During discussions over Vivendi’s future, Levy proved reluctant to shrink or split the ensemble he helped build through acquisitions including those of Activision and Brazilian phone unit GVT, along with the buyout of SFR from partner Vodafone Group Plc (VOD), the people said.
“Levy’s resignation makes it more likely that we’ll see steps toward structural changes, since he was seen as a defender of the group’s structure” said Mirko Maier, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany. “The likelihood of major asset sales or even a split-up is increasing.”
The differences between Levy and Fourtou’s views were apparent during an annual management meeting, which had been planned to take place last weekend on the French island of Corsica before it was moved to a secret location outside Paris, the people said.
After the meeting, Vivendi said in a press release it would communicate its plans “as and when appropriate.” The next day, Levy cancelled an appearance at a London investor conference organized by JPMorgan, instead speaking via video conference about his focus on cost-cutting at the SFR unit, according to people who attended the meeting.
The tensions with Fourtou were intensified by a U.S. court decision this week to fine Vivendi $956 million over a 2001 deal with Liberty Media Corp. (LMCA) made by Messier, the people with knowledge of their discussions said. The verdict prompted Moody’s Investors Service and Fitch Ratings to issue warnings about their ratings on Vivendi’s approximately 12.5 billion euros in net debt. Vivendi said it would appeal the ruling.
Levy’s departure follows “a divergence of views on the strategic development of the group,” Vivendi said in its statement yesterday. “The supervisory board wishes to thank Jean-Bernard Levy for his contribution over the last ten years alongside Jean-Rene Fourtou,” the company said.
Vivendi has hired a headhunter to look for a permanent CEO, although an appointment is unlikely in the short term as Fourtou looks to guide strategy on his own, said people with knowledge of the matter. The company yesterday also named personnel chief Stephane Roussel as SFR’s CEO.
Michel Combes, the Vodafone executive who was due to join SFR for that position in August, will no longer take the role after he asked to succeed Levy and was rejected by Fourtou, according to people with knowledge of their discussions.
Combes, 50, had agreed to take the job with the understanding it would lead to an eventual appointment as CEO following Levy, and was also discouraged by Fourtou’s pessimism about the telecommunications industry, the people said.
Levy, who joined Vivendi as chief operating officer in 2002 and was promoted to CEO in 2005, was tasked with restoring profitability after a three year stretch in which Fourtou unwound most of Messier’s $77 billion acquisition spree, which included Hollywood’s Universal film studios and the publisher Houghton Mifflin. After profit reached 3.7 billion euros in 2011, Levy said this year that earnings wouldn’t grow again until 2014 due to competition for SFR from discount mobile provider Iliad SA. (ILD)
Fourtou signalled his determination to consider all possibilities to turn Vivendi around in an April 19 letter to shareholders in which he said the company’s market discount relative to its assets was close to 40 percent.
“We will not stay idle,” he wrote, “and there are no taboos about how we will tackle this.”
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