Vivendi Universal Publishing

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At its peak in 2000, Vivendi Universal Publishing was one of the world's largest publishing groups, active in magazines and newspapers, games software, education and book publishing, and with significant interests spread across France, the US, Latin America and Spain. However the purchase of US publishing house Houghton Mifflin in 2001 was one deal too many for parent Vivendi. The resulting financial crisis led to the gradual break-up of the entire publishing group during 2002.

Vivendi Universal Publishing was created from a seed planted in 1835. Charles-Louis Havas was originally a translator by occupation. In 1835, he established what was in fact the world's first wire service to distribute developing news stories around Europe. Among Agence Havas's early employees in Paris were Julius Reuter and Bernhard Wolff, who subsequently left to set up agencies of their own in London and Berlin respectively, supplying news in turn to Havas or disseminating the French agency's material to their own clients. In the age before efficient international communications, these three agencies - Havas, Reuters and Wolffs - came to dominate news reporting during the second half of the 19th century.

Later, Charles-Louis Havas's sons took over management of the business and built their own subscription-based network of magazines in France to serve as an additional source of sales revenues and to expand media representation. In 1920, the business merged with advertising company Société Génerale d'Annonces to form the country's largest press advertising sales agency. Between the two world wars an ongoing drive to build a wide-ranging advertising network helped offset the subsequent loss of the wire service division, which was seized by the Nazi-backed Vichy government in 1940, and renamed as the Office Francais d'Information (or French Information Office). After the liberation of France in 1944, it was maintained as a government controlled entity under the new name of Agence France Presse, and continues to this day (as AFP). In 1945, the Agence Havas advertising network was also nationalised, diversifying into tourism, and setting up Havas Voyages travel agencies in the French provinces. (These are now owned by German travel group TUI). In addition to its activities as a seller of advertising space in press, radio, cinema and outdoor, the company also began developing a separate network of agencies which created and bought advertising on behalf of clients. These were spun off in 1972, eventually becoming what is now the Havas marketing group.

Meanwhile, publishing business Agence Havas expanded further, moving into free sheet newspapers in 1971, newspaper and magazine publishing in 1979 and pay TV in 1984 as one of the founding shareholders of Canal+. In 1987, the group went public. Following further acquisitions, it had become France's foremost communications group by the late 1990s. In 1998 Havas was targeted by Compagnie Générale Des Eaux, then one of the country's biggest utilities groups. Générale Des Eaux's new CEO Jean-Marie Messier, a former financier, had an ambitious plan to transform the power and water business into a media group, and he made Havas the first building block in this scheme. In May 1998 the two companies merged, adopting the new name Vivendi.

Compagnie Generale des Eaux (CGE) had been founded in Paris in 1853 by imperial decree. Its objectives were to irrigate the countryside to help farming, and to supply water to towns and cities in France. Lyons, Nantes and Paris were the first major customers over the following decade, and by the end of the century the company had also signed up key international cities including Venice (in 1880), Constantinople and Oporto. The introduction of ozone instead of chlorine into the water supply from 1905 greatly improved the taste and quality of mains water, and CGE's business boomed. By 1953, the company had 8m customers in France, and a pipe network of over 10,000km. It had also expanded into other public utilities, including the collection and processing of household waste. During the 1960s, the group added heating management to its list of services, and in the following decade was one of the major developers of the new Paris business district of La Defense. By the mid-1970s, water distribution accounted for less than half of sales.

In 1976, chairman Guy Dujouany kicked off a massive expansion drive within the group. In 1980, Generale des Eaux swallowed energy group Compagnie Generale de Chauffe to become France's leading energy provider. The same year, it snapped up transport and logistics group Compagnie Generale d’Entreprises Automobiles (CGEA). Media joined the portfolio in 1983, when the group became an investor in Canal+, the country's first pay-TV channel, also backed by Havas. This was followed by the launch of mobile telephone company Societe Francaise de Radiotelephonie (SFR) in 1987. The group's construction and engineering division doubled in size a year later when it took a major stake in Societe Generale d’Entreprises (SGE). Between 1987 and 1990 alone, the group's sales almost doubled to FF100bn. The 1990s saw Generale des Eaux turn its attention to the international market, establishing water processing and waste management facilities all over the world. During the decade the group won contracts throughout the US via subsidiary PSG, as well as in Sydney, Kuala Lumpur, Tianjin, Mexico City and Caracas. By 1994, Generale des Eaux was also the UK's largest collector of household waste, serving six million people.

With sales topping FF166bn in 1996, the company began to restructure under new chairman Jean-Marie Messier. The old-fashioned Generale des Eaux name was abandoned in favour of more stylish invention Vivendi, and Messier announced a strategic focus on media and communications. In order to increase his control of fast-expanding Canal+, Messier took an initial 30% stake in Havas in 1997, before acquiring full ownership a year later. Under that 1998 merger, the majority of Havas's non-publishing interests, including its shares in pay-TV channel Canal+ and Havas Advertising, were transferred to the parent company and the Havas unit itself was restructured as a book, newspaper and magazine publisher. The advertising sales division, previously Havas Media Communication, was broken up and sold. Yellow Pages subsidiary Oda was acquired by France Telecom; and poster groups Avenir, Mills & Allen and Sky Sites were sold to JC Decaux.

Meanwhile Havas's publishing businesses went shopping. In 1998, the company teamed up with Bertelsmann to buy Spanish and Latin American medical publisher Doyma, as well as Spanish educational publisher Anaya. The group's software arm, then known as Havas Interactive, boosted its portfolio with the acquisition of several games publishers from Cendant. In 1999, Havas strengthened its relationship with Bertelsmann, becoming 50% partner in the French division of BOL, an early (and ultimately unsuccessful) shopping portal.

Meanwhile parent Vivendi was also brandishing its chequebook elsewhere. In 1998, it was the principal backer of Cegetel, a new rival to France Telecom, which offered cheap-rate fixed line telephone service Le 7. The group's transport arm CGEA extended its European network by acquiring rail services in Germany and Scandinavia's second biggest road passenger transport company, Linjebuss. Meanwhile a series of huge acquisitions transformed the group's business in the US. Its Sithe Energies subsidiary acquired 23 thermal power plants from GPU in 1999; the water division acquired US Filter, making Vivendi the world's biggest water processor; while the waste management arm purchased Superior Services. Elsewhere, Vivendi teamed up with Allianz and RWE to take a stake in Germany's state-owned water company Berliner Wasserbetriebe. It also acquired 28% of Spanish construction giant FCC. To finance these deals the group offloaded almost $1bn of its property holdings to Unibail, and hotels and restaurants to Accor.

By now, Messier was tiring of the less glamorous services division. During 2000, the E11bn construction & property division was effectively eliminated. Vivendi's stake in Groupe SGE, then Europe's biggest construction company, was reduced to just 15%, and property arm CGIS, which included developers Groupe George V and Phenix International, and France's biggest carpark group Sogeparc, was sold off to a group of venture capital investors for just under $1bn. Soon afterwards all of the remaining water, waste and energy assets were hived off into Vivendi Environment in order to give media and communications centre stage.

The determined move towards media was emphasized in May 2000 when Vivendi agreed to buy Canadian entertainment and drinks company Seagram for $34.7bn in stock, then spent a further $15bn to buy the remaining shares in Canal+'s parent group. All three businesses were combined under the new name Vivendi Universal, with an initial market capitalisation of $100bn. (Seagram's drinks portfolio was subsequently sold off in a long and tortuous auction, and the group was also forced by regulators to sell its stake in BSkyB). Even as Vivendi Universal struggled to consolidate these substantial purchases, Messier was still busy shopping. At the end of 2001, he gave a substantial boost to the group's US presence with three further deals. In the first, the group used $1.5bn of the proceeds from the sale of its BSkyB stock to acquire a 10% stake in satellite broadcaster Echostar, then the prospective new owner of US satellite broadcaster DirecTV. (The stake was subsequently sold in early 2003 for just over $1bn after the DirecTV bid was blocked). A day later the group swapped Seagram's 43% stake in Barry Diller's entertainment group USA Networks plus around $4bn in cash and shares for control of that company's cable channels and production studios.

A further deal added book publisher Houghton Mifflin to the Vivendi Universal Publishing portfolio with a price tag of $2.2bn. That acquisition established Vivendi as the worldwide #2 in educational publishing, but it also generated substantial debt. To pay this off, the group announced it would put up several of its other businesses up for auction. Vivendi Professional and Health Information had housed a string of important business publishers including construction industry publisher Groupe Moniteur, IT publisher Groupe Tests, France's leading publisher of legal textbooks Dalloz, science and business textbook publisher Dunod, and trade exhibitions arm Groupe Exposium. After several months of negotiations, sale of the portfolio was agreed in Spring 2002. Vivendi retained a 25% stake in the business, with the balance split between venture capital groups Cinven (the largest shareholder with 37%), Carlyle and Apax. However the initial payment of E1.2bn was not enough to stave off Vivendi's developing financial crisis, and a few months later, the group was forced to sell off the rest of the publishing division as well.

First to go was the company's prestigious newspaper division, Groupe L'Express L'Expansion. This had been formed at the beginning of 2002 from the merger of Groupe L'Express (housing leading news magazine L'Express, and consumer magazines Lire, Classica, Maison Francaise and Maison Magazine) with financial publisher Groupe Expansion (magazines L'Expansion, L'Entreprise and Courrier International). Both had previously co-existed as independent units within Vivendi. In September 2002 the whole portfolio was sold for E300m, along with leading regional French newspaper publisher Comareg. The buyer was arch rival Socpresse, the family holdings company founded by press baron Robert Hersant, already the owner of Le Figaro newspaper. The deal was finally completed in February 2003.

This left significant publishing operations in Europe and Latin America as well as Houghton Mifflin in the US. Vivendi Universal Education was still the world #2 in educational software, and a leading publisher of textbooks, with brands including Larousse, Chambers and Harrap. Vivendi Universal Literature was France's #1 publisher of hardback literature and the #2 paperback publisher, through such imprints as Laffont, Pocket, Plon-Perrin, Omnibus, Les Presses de la Renaissance and others. The company put a valuation of E3.5bn-E4bn on the business, but bids from all three potential buyers came in below that figure. As a result, the business was split into two parts.

As stock markets plummeted at the end of 2001 and again in 2002, the group was forced to write off almost E16bn in goodwill in its accounts, mostly resulting from the Seagram and Canal+ purchases. Vivendi reported a E13.6bn loss for the year, the biggest recorded loss in French corporate history. This prompted a tidal wave of criticism for Jean-Marie Messier's management of the group. The backlash intensified after Messier resolved a management dispute by sacking Pierre Lescure, COO of Canal+, and one of the country's best-known media executives. Canal+ staff mounted a public demonstration to protest the dismissal. There was also open disagreement among members of Vivendi Universal's board over strategy. Most dismayed of all was former Seagram boss Edgar Bronfman, who had sold his family business to Vivendi for an all-share deal. As Vivendi's share price plunged so too did the value of the Bronfman family's stake, from an initial value of just under $7bn to as little as $3bn after disposals. In early 2002 Edgar Bronfman resigned his executive role in protest.

Ignoring problems elsewhere in the group, Vivendi Environment acquired British utility Southern Water in Spring 2002 for £2.05bn. However the utilities company was at the centre of a new crisis a few weeks later, when Messier abruptly sold off part of the group's shareholding in the Vivendi Environment division, despite a previous pledge that he would wait for more attractive market conditions. The rushed nature of the deal raised concerns among investors over the group's cash position. These intensified when rumours spread that there could be errors in the group's accounts, which had been audited by Arthur Andersen, the accountancy firm which had recently been shamed in the Enron and Worldcom fraud scandals. At the beginning of July, Vivendi's bonds were reduced to junk status amid speculation that credit lines had been frozen by its banks.

Messier finally bowed to the unrelenting pressure, and resigned at the beginning of July 2002. He was replaced by Jean-Rene Fourtou, already regarded as a hero of French industry for his successful management of drug giant Aventis. Fourtou set about repairing the damage caused by Messier's reckless expansion, selling off assets in order to raise cash. A deal was agreed in October 2002 to sell the European and Latin American businesses to Hachette for E1.2bn. Yet that deal faced considerable scrutiny from regulators. For most of 2003 the European publishing houses continued to operate separately from the rest of Hachette under the name Editis, awaiting approval. Finally, a compromise deal was agreed towards the end of 2003. Lagardere agreed to sell off almost two-thirds of the Editis assets, including French publishing houses Laffont, Pocket, and Robert as well as the group's state-of-the-art book distribution centre, in order to gain approval for the acquisition of the remainder of the business, including the Anaya, Larousse, Armand Collin, Dunod and Dalloz imprints. Houghton Mifflin, riding high on the back of the publishing rights it owned for JR Tolkien's Lord Of The Rings - sales of which had soared on the back of Time Warner's movie adaptations - was sold separately in November 2002 to private equity groups Bain Capital and Thomas H Lee for E1.7bn.

As a result of interest from several buyers, the Universal Studios business was put up for sale in 2003. Interested bidders included film studio MGM, cable group Liberty Media, outgoing VUE boss Barry Diller and of course former Seagram boss Edgar Bronfman, eager to buy back some of what he had lost. However a deal was eventually sealed with NBC. At the same time, Vivendi finally secured sufficient funding to allow it to counter an attempt by Vodafone to acquire telecom division SFR. Instead Vivendi acquired the controlling stake in the telecoms business for E4bn.

Later in the year the group went to court in an attempt to halt a E20m severance bonus payable to ousted CEO Jean-Marie Messier under the terms of his contract. The SEC subsequently upheld Vivendi's case regarding suspension of the bonus, and fined Messier a further $1m. It also barred him from serving as a director or officer of a US-quoted company for 10 years. In addition Vivendi itself was handed a civil penalty fine of $50m. The case against Messier intensified in June 2004, when he was arrested and placed under formal investigation on suspicion of share price manipulation, publication of false information and misuse of company funds. He was released from custody on bail of E1.35m. The French financial regulator subsequently fined both Messier and Vivendi a further E1m each. A court of appeal later halved Messier's fine and reduced Vivendi's to E300,000.

During the summer of 2004 there were reports in the French press of talks between Vivendi and media-to-armaments giant Hachette-Lagardere regarding a merger. No further developments materialised at that level, although the two companies solidified their partnership in pay-TV in 2005 with the restructuring of the Canal+ Group. Jean-Rene Fourtou handed over executive control of Vivendi to his deputy Jean-Bernard Levy that year.

The break-up of Vivendi's once substantial traditional publishing group left only one unit, Vivendi Games. This merged in 2008 with US rival Activision to form the #1 in gaming software, Activision Blizzard. It remained under Vivendi's control until 2012.

Last full revision 8th December 2017


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