Messier's Mess

Vivendi's outspoken boss is trying board members' nerves

Vivendi Universal (V ) CEO Jean-Marie Messier looked shell-shocked, and no wonder. As his corporate jet touched down in Paris on Apr. 16, Le Monde hit the newsstands with a front-page story outlining a supposed boardroom plot to oust him. While aides rushed to scuttle that rumor, Messier headed to a meeting where he fired Pierre Lescure, the popular founder of Vivendi's Canal+ pay-TV unit. Outraged Canal+ employees promptly interrupted regular programming, put a tearful Lescure on the air to denounce Messier, and urged the station's French viewers to cancel their subscriptions. Meanwhile, at a hastily convened press conference, Messier defended his decision but issued a rare mea culpa for the turbulence that has sent Vivendi stock tumbling 35% since January. "Have I sometimes communicated too often and out of provocation? Yes," he said.

It's hard to believe this is the same Frenchman who dazzled global big shots at the World Economic Forum in February with his trenchant presentation--or the same financial wizard who swooped down on Hollywood two years ago to grab the lucrative Universal movie and music businesses from Seagram Co. Today, no one is asking where Messier will strike next. Instead, media execs in Hollywood, New York, London, and Paris wonder whether Messier, 45, will be ousted by the very company he created.

Messier's gaffes are numerous. He has infuriated the French with his pro-American rhetoric, terrified shareholders with sudden, big-ticket bids, and caused an uproar inside his company with his highhanded treatment of managers. The $13 billion asset writedown that Vivendi announced on Mar. 5 was a stunner that led Wall Street to fear that more nasty surprises could emerge from Messier's creation. No wonder there's growing unease on the board, which includes French business leaders such as luxury-goods tycoon Bernard Arnault and Alcatel CEO Serge Tchuruk, as well as members of the Bronfman family, who have seen Vivendi's share price decline 58% since they sold Seagram to Messier in 2000.

Awful stuff, yet insiders tell BusinessWeek that Vivendi's board has no plans to fire or rein in Messier when it meets in Paris on Apr. 24. But the board is almost certain to reiterate a stern warning it gave Messier in March: Lower your profile and start producing results--or within a few months you could be out of a job. Among the most urgent issues are trimming Vivendi's $25 billion debt, spinning off noncore units such as its utilities business, and clarifying how Vivendi will knit together acquisitions ranging from USA Networks Inc. to publisher Houghton Mifflin Co.

Of course, the board could move swiftly against Messier if he stumbles again, or if the share price sinks low enough to spur a takeover threat. Indeed, at $35, shares are already cheap enough to spur talk of a raid. The Bronfman clan or other shareholders such as U.S. media tycoon John Malone might lend support to a takeover effort or pressure Messier to draft a Hollywood veteran as a strong No. 2.

But Messier is holding several strong cards. One, ironically, is Vivendi's complicated array of holdings. The Paris company's French broadcast and telecommunications licenses--essential to its most lucrative European operations--would be nullified if non-French interests took control. Likewise, a shift to non-French ownership would void billions of dollars in municipal water contracts held by the utility division. Few French companies could muster the wherewithal for a raid, either. "That's Messier's poison pill, and he knows it," says a Paris investment banker who is very familiar with the company.

What's more, Vivendi's complexity strengthens Messier's hold on the executive suite: There are few obvious replacements. True, any number of U.S. media moguls might do a better job running Vivendi's entertainment businesses, but could they deal with the French regulatory thicket or run utilities? And not many French CEOs could operate as comfortably as Messier does in Hollywood and on Wall Street.

Another strong card is Vivendi's rich portfolio. Universal Studios is on a roll after A Beautiful Mind won several Oscars, including Best Picture. The publishing and mobile-phone operations are big moneymakers, too. Merrill Lynch & Co. forecasts that first-quarter operating earnings will be up 11% over the same period last year, to $880 million, on sales of $5.5 billion. "This is the first year that Messier really will show investors the great merits of the business," says Marc Gabelli, whose Gabelli Asset Management Inc. fund is a longtime Vivendi investor.

Some important allies are rallying behind Messier. "He is the victim of a wild over-reaction" says Barry Diller, the U.S. media mogul who sold USA Networks' TV operations to Messier in December and who has been running Vivendi's U.S. film and TV businesses. Diller is seen as the biggest wild card in Vivendi's top management, a potential ally--or a potential player in a coup. Diller, however, swears his loyalty to Messier. "What's terrible is that he is in the middle of a transition and making great changes," Diller adds. And investors seemed reassured that Messier stood his ground against Lescure. Shares rose more than 10% in the three days after their showdown first made headlines.

Yet the political fallout from the Canal+ affair could still damage Messier heavily. Lescure, 56, is an icon of French broadcasting and a staunch defender of France's film industry, which is heavily subsidized through taxes on media outlets such as Canal+. By firing him five days before France's presidential elections, Messier showed a disastrous sense of timing. Socialist Prime Minister and presidential contender Lionel Jospin immediately called on regulators to question Messier on whether Lescure's firing violated terms of Canal+'s broadcast license.

What's most troubling is that the Canal+ blowup could have been avoided if Messier had curbed his tongue. Canal+ is Vivendi's chief media asset in Europe, and it clearly needs attention. It turned in a $330 million operating loss last year--the only major Vivendi unit to run in the red. Messier had to do something--but why did he have to trumpet the nasty details in the press? In March, he told French business daily La Tribune of his ultimatum to Lescure and Canal+ Chief Operating Officer Denis Olivennes to reach breakeven in two years. After a furious Olivennes defended himself in an e-mail to employees, Messier upbraided him and Lescure in front of 400 Vivendi execs. "It was appalling," says one. "Messier does not know how to manage people."

He may, however, know how to manage a company. With little fanfare, Vivendi is busy squeezing more money out of its assets. A major cross-marketing effort for the 20th anniversary re-release of E.T. the Extra-Terrestrial involves everything from books and video games to a Canal+ television special featuring the lovable alien. DVD sales from other Universal blockbusters are giving a big boost to earnings, too.

If he keeps his job, Messier must get on with the task of reducing Vivendi's stake in noncore holdings, such as utility company Vivendi Environment. That will not only clarify Vivendi's status as a media and communications company but also generate cash to pay down debt. And Messier has to work with Lescure's replacement, Xavier Couture of France's TF1 network, to stanch the red ink at Canal+. "This is not a one-man show," he told reporters after the Apr. 16 news conference. "I will work with our team to produce results." It's a promise Messier can't afford to break.

By Carol Matlack, with John Rossant in Paris and Ronald Grover in Los Angeles

— With assistance by John Rossant, and Ronald Grover

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