Vivendi May Write Down Media Assets

Vivendi Universal is expected to take a multibillion-dollar write-down on some of its core entertainment assets, the latest in a summer-long series of bad-news announcements by the beleaguered French media and utility giant.

Vivendi declined to comment on the matter, but Vivendi Chairman Jean-Rene Fourtou reportedly will announce a write-down of $5 billion to $10 billion, stemming in part from Internet and television assets acquired in December when Vivendi purchased the entertainment assets of USA Networks.

Although Vivendi will show a slight increase in overall sales and earnings when it releases second-quarter earnings Wednesday, the declining value of those media assets means the company will report a net loss for the quarter, sources close to the company said.

It marks Vivendi’s second write-down this year: In April, the company wrote off about $17 billion against first-quarter earnings.

The optional accounting move, according to analysts, reduces some of the uncertainty about the value of the company as it struggles to restructure itself into a smaller, leaner, more cohesive entity. But it also decreases the value of the assets it seeks to sell to reduce its $19-billion debt.

With significant questions about the future of the company unanswered, Vivendi’s share price continues to be depressed. Speculation about the write-down sent Vivendi shares, already off 70% for the year, down 57 cents to $15.68 on the New York Stock Exchange.

With the declining market value of AOL Time Warner Inc., Vivendi and Walt Disney Co., among other media companies, the write-down does not surprise analysts.

“The market is valuing media assets roughly a third lower than when Vivendi Universal bought USA Networks,” Sanford C. Bernstein & Co. analyst Michael Nathanson said.

Vivendi’s financial problems are the legacy of former Chief Executive Jean-Marie Messier, who sought in recent years to transform the French water and sewer utility company into a media powerhouse by feverishly buying media properties, including Universal Studios.

Most recently, Messier bought USA Networks’ entertainment assets for $10.3 billion. As part of that deal, USA Networks Chairman Barry Diller agreed to become chairman of Vivendi Universal Entertainment, a unit including Universal’s movie, television and theme park units.

“At the time, it was a pretty good value for Vivendi,” said Paul Kim, an analyst with Kaufman Bros. Only in retrospect, with the declining value in media properties, Kim said, does it look too good for Diller and not so good for Vivendi.

Fourtou has said the company plans to sell major assets to reduct debt. He has not, however, said precisely which assets will be sold or when.

“There is value in the company,” Nathanson said. It’s just not clear yet whether Fourtou plans to build or dismantle Vivendi, he added.

At this point, executives at Vivendi’s U.S. entertainment units--Vivendi Universal Entertainment and Universal Music--expect Fourtou to sell those units, potentially to the public in a new stock offering this year or next year.

Some of the assets expected to be devalued this week, including Universal’s television production unit as well as the USA and Sci-Fi cable networks, operate within Diller’s unit.

Last week, the company indicated it plans to sell its video-game unit with offices in Northern California, Universal City and Europe.

Fourtou has been more forthright about the assets the company does not plan to sell.

Citing regulatory concerns, he has stated he does not foresee reducing the company’s European water and sewage holdings, the centuries-old foundation of the company.

He has told Vivendi’s U.S. publishing unit, Houghton Mifflin, that the company plans to keep it as well.

Fourtou this summer announced plans to sell off unprofitable divisions of the company’s European pay television unit, Canal Plus. But the highly respected, and profitable, French division will remain part of Vivendi, he said.

In anticipation of this week’s earnings announcement, half a dozen analysts surveyed by Reuters forecast Vivendi’s second-quarter sales from media and communications at an average of about $7.5 billion, up from $6.5 billion a year ago.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, is pegged at about $1.4 billion versus nearly $1.3 billion a year earlier.

Analysts said the net result would be so distorted by the expected write-down that they saw little point in drawing up forecasts.

In a separate development Monday, a class-action lawsuit was filed against Vivendi in U. S. District Court for the Southern District of New York on behalf of Vivendi securities holders from April 23, 2001, to July 2, 2002.

The complaint, filed by law firm Berger & Montague, alleges that the company issued materially false and misleading statements, artificially inflating the market price of Vivendi’s securities.

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Times wire services were used in compiling this report.