Battle Lines Drawn

His diminutive stature, imperial ego and empire-building ambitions have earned Vivendi Universal chairman and CEO Jean-Marie Messier Napoleonic comparisons in the past. Now he’s got a potential Waterloo as well. This week the media and entertainment mogul will seek to survive external attack — and open rebellion within the company — during a crucial assembly of his board and shareholders. The April 24 showdown comes after his firing last week of Pierre Lescure, chairman and co-founder of the iconic French pay channel Canal Plus, whose outraged employees have joined critics in the investment community in demanding Messier’s ouster.

Messier’s fortunes have collapsed as dramatically as the stock bubble his empire was assembled upon. The dizzying, five-year deal-making spree that transformed an old-line water company into the world’s second-largest media group after AOL Time Warner made Messier a hero at home and an object of wonder around the world. But awe has turned to ire. Last month, the 45-year-old ceo announced 2001 losses of ?13.6 billion — the biggest in French history — based on a ?15.7 billion write-down of businesses from Messier’s acquisition binge. Meanwhile, a resulting ?33.4 billion debt — coupled with a general economic slowdown — continues weighing greatly on Vivendi stock. Many analysts and investors formerly smitten with Messier have expressed a desire to smite him, with calls for his ouster rising daily. If all that weren’t bad enough, Messier last week ran afoul of nothing less than French culture.

His abrupt firing of Canal Plus chairman Lescure — replacing him with Xavier Couture, director of France’s largest TV station and Canal Plus nemesis, TF1 — provoked an outcry from virtually every sector of French public life, including the main candidates in last weekend’s first-round presidential election. Within minutes of the announcement, employees at the ferociously independent channel gathered in its main studio and broadcast a live meeting in support of Lescure. They also copiously maligned Messier — whose championing of globalization à la française they’ve always distrusted. His purchase of a $17.5 million Manhattan apartment and declaration that “the French cultural exception is dead” further reinforced their view that Vivendi Universal is an American-inspired enterprise that sacrifices cultural expression for the sake of profits. “Messier, you may own Canal Plus, but you have no idea of what goes into its programs,” Bruno Gaccio, lead writer for the popular satirical news show Les Guignols de l’Info, told his boss from the sit-in. “You own film studios, but can’t make a movie. You own record labels, but you can’t write a song. You’re reputed to be a master of finance, but your results revealed you’re actually a lousy financier. You’re the one who should be fired.” Public, political and media reaction largely came down on the Lescure-Canal Plus side. No wonder. Created in 1984 amid a barren and insipid French audiovisual landscape, Canal Plus used its pay-TV monopoly to single-handedly transform French television. With American premium channel HBO as a model, Canal provided subscribers first-run movies and exclusive sports coverage and hired creative talent ignored by other French broadcasters to produce innovative, taboo-challenging drama and comedy. In exchange for its pay-TV license, Canal Plus agreed to spend 20% of its revenues financing movies, and today it funds 80% of all French films. That setup not only made Canal a prized source of TV entertainment on its own, but also a vital mechanism in France’s exception culturelle.

Its success in France led Canal Plus to expand in Europe, and in 1996 it launched the Continent’s first digital satellite platform, Canal Satellite. With 15.9 million subscribers in 11 countries, the Canal Plus Group was bought by Messier in 2000 for ?12.5 billion, concurrent with the $34 billion purchase of Seagram and its Universal movie and music businesses. Canal Plus’ satellite platform, the strategy held, would provide the European “pipes” through which Vivendi Universal music and film would be delivered to consumers.

But developing and maintaining that European structure has proved incompatible with Messier’s other priority, reversing the five-year run of losses at Canal Plus. Its ?500 million deficit in 2001 was the heaviest drag on Vivendi group results. To address the ebbing confidence of investors, Messier last month gave Canal Plus officials a two-year deadline to return the channel to profitability. That ultimatum rankled a staff that had already lost 217 jobs — and some of its legendary but costly programming — the previous year. Lescure refused to make Messier-imposed management changes, so Messier fired him — final proof to many that Canal Plus was being sacrificed to the still-unproven Vivendi Universal convergence scheme. “Canal Plus, the French station, still makes money,” fumes a Canal executive. “The group loses money in certain markets — mostly Italy — on the satellite platform Messier’s strategy depends on. Yet we take the hit.”

Even before Lescure’s ouster, the drumbeat from the financial market to replace Messier was getting louder. Le Monde appeared to join the campaign with reports that Vivendi board members — at the urging of the highly respected doyen of France’s business establishment, Claude Bébéar of insurance giant AXA — were plotting a coup. Representatives of Bébéar, who is not on Vivendi’s board, deny it. Though still down around 45% over a year ago, Vivendi Universal shares did rally about 14% over the past tumultuous week. Some, however, attribute that rise to large purchases by financier Vincent Bolloré — a Paris-based raider notorious for taking stakes in undervalued, controversy-prone companies. Still other analysts link the share rise to expectations that Messier will be ousted at Wednesday’s board meeting — a prospect that dimmed late in the week with news he had finally concluded the ?1.5 billion sale of Vivendi’s specialized publishing interests (albeit down from the initial ?2 billion asking price). “Virtually all big media groups, including AOL Time Warner, are suffering the same stock slump as Vivendi,” says Mark Harrington, an analyst at J.P. Morgan Chase in London. He figures Messier will “be given the rest of the year to prove whether he can make his vision and strategy work.” But even if Messier retains his post and gets Vivendi Universal into world-class form, the recent battles will almost certainly cost him his imperial mantle and Napoleonic aura.