Vivendi Universal reported record losses of €23.3 billion for 2001-2002 due to acquisitions made by then-CEO Jean-Marie Messier that ultimately led the company near bankruptcy. Messier had a vision to transform the formerly utility-focused Vivendi into a global media giant but his numerous acquisitions accumulated huge debt and hid liquidity problems, forcing his resignation in July 2002 and dooming his vision.

1. Failure of a Vision at Vivendi
Vivendi Universal (VU), the French media and telecommunications company,
reported losses of Euro 23.3 billion for the financial year 2001-2002, the biggest
corporate loss recorded in French business history. Jean Marie Messier (Messier),
the then CEO of VU, had dreamt of turning VU into a leading global media
company' and had made a number of acquisitions in 2000 and 2001. His dream,
however, turned into a nightmare when these acquisitions ultimately led to the near
bankruptcy of the company. The company was downgraded to 'junk' status" by
many credit rating agencies and analysts too wrote off any possibility of its revival.
Messier was held responsible for the state of the company and was forced to step
down in July 2002.
VU originally started its business as a utility company. It was founded in 1853 as a
joint stock company by the French government under the name Compagnie
Generale des Eaux (CGE). The government established the company for two
purposes: to provide water to irrigate land for cultivation, and to supply drinking
water to the cities of France. The next two decades saw the company strengthen its
utilities business by oifering district heating services and waste disposal services.
During the 1970s, CGE also forayed into real estate promotion and the construction
and energy businesses.
In 1980, CGE became the largest private energy group in France, when it acquired
Compagnie Generale de Chauffe, a company that offered heating and air
conditioning services. During the 1980s, the .company acquired companies like
Omnium de Traitement et de Valorisation (OTV), a water management company,
and Compagnie Generale d'Entreprise Automobiles (CGEA), a transportation and
waste management company. Also in the 1980s, the company established the first
ever pay television channel in France called Canal Plus in association with Agency
Havas (Havas)," a media group. CGE owned a 15 percent share in the new entity.
In 1987, CGE entered the telecommunication and media business by setting up
Societe Francaise de Radiotelephone (SFR). In 1992, CGE expanded its global
operations and was seen as an 'emerging global corporate giant.'
However, CGE's fine run came to an end in 1994 with Messier taking over as the
company's CEO. Messier had a vision of transforming CGE from a utility
company into a 'leading global media company.' Messier served as the company's
CEO from 1994 to July 2002. During his tenure, he bought and sold many
companies, to realize his vision. During the late 1990s, Messier established Cegetel
which provided both fixed and mobile telephone services in France. Messier's
acquisitions in the late 1990s included NetHold, one of the leading pay TV
operators in Continental Europe, Cedent Software, a US-based education and
entertainment software provider, and Anaya, one of the leading education and
multimedia publishers in Spain. The company also acquired full ownership of
Havas. In addition, CGE also established Telecom Development (TD), an
alternative telecommunication network, in association with the French national
railways, SNFC. The company also bought a 47.5 percent stake in United Water, a
New Zealand-based water services company. Messier renamed CGE as 'Vivendi' in
1998. By the end of 1998, Vivendi had been transformed into a global company
with worldwide sales of 205 billion French Francs.

2. In the years that followed, Messier went on a hasty buying and selling spree. In
1999, Messier purchased a 30 percent share in Elektrim Telekomunikacja
(Elektrim), a Polish telecom company, and a 23 percent share in BskyB, a US-
based broadcasting company." Also in 1999, the company sold Havas' outdoor
advertising operations to J C Decoux. Messier made vital changes in the company,
particularly in the telecommunication business. However, the deal that made the
world sit up and take notice of Vivendi was the merger between the company and
Seagram? in 2000. With this merger, Vivendi became Vivendi Universal, the
second largest media company in the world, the first being AOL-Time Warner.8
Analysts praised Messier for this move as the new company was supposedly
Europe's 'answer' to the US media giant. Major acquisitions made by Messier in
2000 included taking a 35 percent stake in Maroc Telecom, a Moroccan telecom
company, and establishment of the Internet portal, Vizzavi (in a 50-50 joint venture
with Vodafone Group, world's leading wireless company).
Messier restructured VU in 2001. He divided the company broadly into media and
communications, and environmental services. While the media and
communications business consisted of business segments like music, publishing,
TV and film, telecommunication and the Internet; the environmental services
business, Vivendi Environment (VE), consisted of water services, energy business,
waste management, and the transport business. Acquisitions continued apace in
2001. In May 2001, Messier acquired MP3.com, an online music company, and
Houghton Mifflin, an educational publisher. By May 2001, Messier seemed to be
doing 'a-deal-a-month,' which led analysts to question the rate at which the deals
were being struck and money was being spent. After the September 11 terrorist
attacks on the WorId Trade Center in the US, there was a crash in the dotcom
business. This had a serious impact on VU's online businesses. In spite of these
unfavorable conditions, Messier paid $10.3 billion in shares and cash and bought
the entertainment businesses of USA Networks in December 2001.9
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The acquisition binge did not end here; Messier purchased EchoStar, a US-based
Satellite broadcaster, Southern Water, a UK-based water management company,
and others in 2001-2002. By early 2002, analysts estimated that Messier had spent
Euro 100 billion between .2000 and 2001 on acquisitions. Analysts predicted that
VU might face serious liquidity problems as a result of these seemingly mindless
acquisitions by Messier. In March 2002, VU recorded a loss of Euro 13.6 billion. It
was also reportedly facing serious cash flow problems. Following these reports, the
share price of the company fell by 60 percent (over the price at the start of 2002).
Messier was accused of keeping the severity of the company's liquidity problems
under wraps. Analysts pointed out that there was a huge accumulation of debt
during Messier's term, mainly due to his numerous acquisitions.
Messier announced in June 2002 that he had sold a 15 percent stake in VE to
Deutsche Bank. In addition to this, some of VE's shares had also been offloaded in
the market. The sale of stake in VE agitated investors as this seemed to indicate
that VU was facing severe liquidity problems, which were forcing the company to
sell its assets. In July 2002,. APPAC (a minority shareholders association) filed a
suit against VU accusing the company of presenting 'untruthful and fraudulent
information' about the financial status of the company. APPAC also accused
Messier of hiding information relating to the financial status of the company. In
July 2002, the VU board asked Messier to quit from his post. Messier resigned as
VU~s CEO in July 2002. The lack of proper leadership on the part of Messier led to
not .only his vision failing but also resulted in Vivendi suffering huge losses.