Former Vivendi Universal Chairman Jean-Marie Messier is marshaling an elaborate response to allegations that he built the company into a global media behemoth by bamboozling investors and his own board members.
At the center of criminal and civil probes in the United States and France are claims that Messier misled investors by hiding Vivendi’s cash crisis, and that he acted without board approval when he spent billions of dollars buying company shares to boost the stock price.
The problems for Vivendi and Messier have exploded in a year that has seen misdeeds across the corporate landscape from Enron to WorldCom and even home-and-hearth maven Martha Stewart, who may face insider-trading charges.
Messier, who took Hollywood by storm with his flamboyant style and deal-making, was ousted this summer as CEO of the world’s second-largest media and theme-park company. His reputation in the balance, he is preparing a detailed rebuttal that focuses on three points, sources close to the former investment banker say:
In the brief window between Messier’s assurances in late June that Vivendi faced no cash crunch and his successor’s disclosure indicating otherwise, one lender terminated a nearly $1 billion backup line of credit, and another refused to provide new financing after a $740 million loan matured.
Vivendi board minutes show directors approved a plan to buy back up to 10 percent of the company’s shares and gave Messier specific authorization to spend billions of dollars carrying out the transactions.
Vivendi’s new chief financial officer, Jacques Espinasse, told board members at a September meeting that he found no evidence of accounting fraud or misleading financial disclosures by the company or its representatives. Messier, sources say, has seized on Espinasse’s findings to bolster his claim that he did nothing wrong.
Although he has not been identified as a suspect or target of the probes, Messier’s actions and financial disclosures during his nearly two-year reign at Vivendi Universal are at the center of four separate investigations by the U.S. Attorney’s Office for the Southern District of New York and the Securities and Exchange Commission, as well as French stock-market regulators and the Paris prosecutor’s office.
In addition, Messier and Vivendi are named in 16 shareholder lawsuits filed in California, New York and Paris.
Interviews with sources inside and outside Vivendi, as well as board-meeting records obtained by the Orlando Sentinel, suggest that U.S. and French prosecutors face a complex task in building a case against Messier or the company.
“This is anything but a clear-cut case,” said securities-law specialist Christopher Bebel, a former attorney for the SEC, when told of the response that Messier apparently is preparing. “It looks like a defense lawyer’s dream.”
Bebel and other legal experts note that it remains to be seen what evidence authorities may have against Messier and any other Vivendi executives and whether his claims will hold up to scrutiny.
Messier’s position may well be undermined by, among other things, internal documents showing that he repeatedly clashed with Vivendi’s former chief financial officer, Guillaume Hannezo. He expressed concern as early as last winter about the breakneck pace of Vivendi’s acquisitions and debt, according to records seized by French authorities.
Indeed, some investors remain convinced that Messier bears prime responsibility for Vivendi’s woes.
“He took too many risks with the money of others,” said Colette Neuville, who heads a group of minority Vivendi shareholders. “He didn’t give enough information to shareholders about the risks he was taking.”
During his tenure, Messier went on a buying spree, which included snapping up Universal’s movie studio, record labels and theme parks, including Universal Orlando. This left Vivendi with a crippling $19 billion media debt load, which in turn sent the stock price tumbling more than 75 percent.
Board Vice Chairman Edgar Bronfman Jr., whose family is the largest single investor in Vivendi and led the boardroom coup against Messier, would not comment. In the past, though, he has made it clear that he feels betrayed by the 45-year-old former executive.
But Messier’s European attorney, Olivier Metzner, said he is confident Messier will be vindicated.
“They don’t really know what they’re looking for. It’s kind of looking like a fishing expedition,” he said of the probes.
Messier, who is said to be close to hiring a U.S. criminal-defense lawyer, also would not comment. At a recent news conference to promote his new book, however, he was defiant.
“Vivendi is no Enron,” he said, referring to the fallen U.S. energy trader, “so I am not afraid to go to jail. Let the judges do their job.”
A Vivendi Universal spokeswoman would say only that the company is cooperating with the investigations.
Testy board meeting
U.S. authorities will seek to determine whether Vivendi and its officers violated the anti-fraud provision of the Securities and Exchange Act of 1934, which prohibits companies or its representatives from concealing material information that would have affected investors’ decision on buying or selling company stock.
Violators face up to 10 years in prison and a maximum $1 million in fines. Companies can be fined up to $2.5 million.
Authorities aren’t commenting on their probes, but sources familiar with the investigations say they will center on what Messier and other officers knew about the company’s liquidity crisis, when they knew it and what they told shareholders.
Investigators are expected to pay special attention to Messier’s actions after emerging from a tumultuous June 25 board meeting. In a detailed financial statement he issued the next day, Messier said, “Vivendi is confident of its capacity to meet its anticipated obligations over the next 12 months.” During a conference call with analysts later that day, he downplayed market fears the company was in a cash crunch.
But less than a week later, Messier was ousted by the board and replaced by new CEO Jean-Rene Fourtou. Within hours of taking over the helm, Fourtou learned he faced “a terrible liquidity crisis,” he would later tell analysts.
“If Mr. Messier had stayed, the company would have gone bankrupt in 10 days,” Fourtou also told French officials in a government hearing on Vivendi’s fall.
Certainly, there was evidence at the time Messier delivered his statement that Vivendi was facing possible cash problems. At the June 25 meeting, for example, the board hotly debated a Goldman Sachs report on Vivendi’s financial situation, including one scenario that warned Vivendi could face serious financial problems if it was unable to sell assets and issue bonds.
Financial prospects worsen
No one disputes that Vivendi’s financial picture grew far more bleak in the days after Messier’s upbeat assessment. Messier is expected to argue that he could not have foreseen the dramatic changes that were about to unfold at Vivendi.
Less than a week after his June 26 statements, German bank BLB rescinded a nearly $1 billion backup line of credit to Vivendi, said a bank source familiar with the matter.
United Kingdom bank Barclays also refused to extend new financing after a $740 million line of credit matured. There are conflicting versions of when the loan matured. A source at Barclays said it was June 24. Other Vivendi documents put the date at June 28. Either way, two sources close to Vivendi’s former management team said Hannezo did not alert Messier that negotiations to extend the loan had failed untilMessier’s ouster July 1. Hannezo declined to comment.
Making matter worse, Vivendi’s top lenders, including Deutsche Bank and BNP Paribas already jittery in a climate of high-profile corporate scandals sweeping America were unwilling to provide new financing until the board replaced Messier, banking and company sources say.
“The banks just didn’t trust Messier, and they were not confident that he had the right strategy,” said one European banker close to Vivendi.
The final blow came July 1, when Moody’s Investor Service downgraded Vivendi to junk status.
It all could all work in Messier’s favor, said Bebel, the securities-law specialist: “If the company’s financial status declined markedly in the wake of his statement, it makes it a tougher case for the government.”
Authorities also are investigating allegations that Messier concealed from board members and Hannezo about $6 billion in purchases, representing nearly 10 percent, he oversaw on the stock market in 2000 and 2001.
Messier’s attorney counters that the board was apprised of his client’s actions.
He cites company records showing that the purchases were part of a plan formally adopted by shareholders and approved by the board in December 2000. The plan outlined specific goals, including buying shares to stabilize the share price and for use in acquisitions and employee stock options.
In June 2001, Messier and Hannezo updated to the board’s audit committee on the progress of the share buy-backs, records show.
“The board of directors cannot argue that they were unaware of Messier’s actions,” Metzner said.
Still,board members felt blindsided to learn that the billions of dollars being spent to buy shares was adding to Vivendi’s already significant debts, sources close to the board said. They contend it was Messier’s obligation to consult with them more fully about the program and its repercussions.
In addition, Hannezo sharply disagreed with Messier about the wisdom of the share buy-backs and at one point established procedures in his department to prevent Messier from placing orders without his consent. But the former CFO reached a compromise with Messier by late 2001 to curtail the costly share buy-backs, sources close to the former management team said.
The French stock-market regulator is expected to issue a final report on its investigation by the end of the year. In the United States, attorneys for the SEC and Justice Department have been meeting to discuss procedures for turning over records.
Messier admits mistakes
Messier has conceded that he made mistakes at Vivendi, including overextending Vivendi with too many acquisitions and drawing too much attention to himself and his jet-set lifestyle straddling Paris and New York.
But he largely blames his demise on market rumors and a coterie of influential French businessmen who were offended by Messier’s Hollywood lifestyle. As for his own conduct, he makes no apologies. As he says in the introduction of his new book My True Diary: “I have nothing to hide.”