vivendi scandal

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By- DHEERAJ AND LALAN

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Page 1: Vivendi scandal

By- DHEERAJ

AND LALAN

Page 2: Vivendi scandal

Vivendi SA (formerly known as Vivendi universal is a French multinational mass media and telecommunication company headquartered in Paris, France. It reported losses of Euro 23.3 billion for the financial year 2001-02 which was the biggest corporate loss reported in French corporate history.

Page 3: Vivendi scandal

Vivendi universal was originally founded in 1853 as a utility company under the name compagnie generale des eaux (CGE). For more than century the company remained largely focused on the water sector. However, in 1976, CGE began diversifying its operations from water into waste management, energy, and transport services, and construction and property. In 1983, CGE helped to found canal+, the first Pay-TV channel in France, and in the 1990s, it began expanding into telecommunications and mass media , in 1994, Jean-Marie Messier took over as the CEO of the company. He had the vision of transforming CGE as a ‘leading media company’ of the world. He acquire many companies to realize the vision. Major acquisitions during the late 1990s included NetHold (one of the leading pay Tv operators in Continental Europe), Cedent Software (US based entertainment software provider), and Ananya (leading Spanish based multimedia publishers). In 1996, CGE created cegetel to take advantage of the 1998 deregulation of the French telecommunications market.

In 2000, Vivendi Universal Entertainment was created with the merger of Vivendi Media Empire with Canal+ television networks and the acquisition of Universal Studios from Canadian company Seagram.

Page 4: Vivendi scandal

(1) Heavy Debts- Vivendi had grown entirely through acquisitions. Messier spent Euro 600 billion in 200-01 for that. Due to numerous acquisitions there was a huge accumulation of debts. Besides band borrowings, bonds convertible into common shares were issued for paying those acquisitions. When the share prices began to fall toward the end of 2001 following dot com bubble burst, Vivendi piled up huge losses and faced severe cash flow problems. Following this the share price of the company fell further by 60% in March 2002. Vivendi off-loaded some stakes in the market including 15% sale of stake to Deutsche Band. The liquidity crunch in Vivendi sent a shocking wave in the market.

Page 5: Vivendi scandal

(2) Misleading Information- Messier tried to cover up the fact of huge losses and debts by issuing press releases portraying cash flows as ‘excellent’, operating earnings (EBITDA) better than the projections and ahead of he targets. The press releases of the first, second and third quarter of 2002 presented a materially misleading picture of the financial condition of Vivendi. In May 2002, Vivendi was talking about comfortable cash situation an manageable debts. In July 2002 Vivendi admitted loss of Euro 13.6 billion for 2001 and accumulated debts of Euro 37 billion.

Page 6: Vivendi scandal

(3) Aggressive Accounting- During 2001-02, Vivendi engaged in a variety of improper accounting practices to present a false impression of company’s operating profits. The top management f the company improperly adjusted certain reserve accounts of subsidiaries, made accounting entries without supporting documents, excluded certain obligation and deviated from the French an US accounting standards. In July 2002, a minority shareholder’s association filed a suit against Vivendi accusing it of concealing financial information and presenting fraudulent information

Page 7: Vivendi scandal

4) Dubious Role of Credit Agencies- Moody’s Investors Services and S7P did not downgrade the credit rating of Vivendi in December 2001 inspite of huge losses and mountainous debts. It ostensibly believed the assurance from the Vivendi management that it would reduce debts in the year 2002.

Page 8: Vivendi scandal

Lack of Proper Leadership- Lack of proper leadership was evident in Vivendi with Messier on a spree of expansion through acquisitions. Messier guided the company by his only dream of dream of turning Vivendi into a leading global media company. Some of the acquisitions and a pile of huge debts ultimately led the company to a near bankrupted. Corporate strategies adopted by the company were most times confusing, sometimes contradictory and unrelated to the media focus of the company.

Page 9: Vivendi scandal

Ineffective Board of Directors- The board was largely ineffective composed of ‘CEO friendly’ directors and dominated by Messier. The board failed to question reckless acquisitions and selling of stakes one after the other. The debts employed for the acquisitions and the resultant high debt equity ratio did not receive proper assessment and attention of the board The board also failed in assessing the leverage risk. The financial management and control system in Vivendi was weak.

Page 10: Vivendi scandal

High Severance Compensation- Messier, the CEO of the company who plunged the company near to bankruptcy was paid severance package of US$ 20million. This was corollary to the collapse of the stock price and heavy losses which the company ha to suffer on account of ill conceived debts to pay off acquisitions

Page 11: Vivendi scandal

Dubious Role of Credit Agencies- The Mooky’s Investors Services and S7P did not downgrade the credit rating of Vivendi in December 2001 in spite of huge losses and mountainous debts. It ostensibly believed the assurance from the Vivendi management that it would reduce debts in 2002.

Page 12: Vivendi scandal

Insider Trading- Certain executives of Vivendi appeared to have indulged in insider trading of selling the shares ahead of the declaration of financial results of the company.

Page 13: Vivendi scandal

Its chairman and CEO. Jean-Marie messier was forced to resign and was subsequently replaced by jean-Rene Fourtou.

Messier was found guilty of embezzlement in 2011.

The company paid over US$20 million to Messier as part of his severance package.

The company began to reorganize to stave off bankruptcy. It announced a strategy to sell non-strategic assets and reduced its stake in Vivendi Environment to 40% and sold its stake in Vinci Construction

Page 14: Vivendi scandal