Change and decay

Remember the Messier discount? Vivendi Universal's stock price was supposed to trade at below fair value because investors were unhappy about the way its chief executive, Jean-Marie Messier, ran the company.
Well, Messier's departure doesn't seem to have done much to eliminate the problem. Indeed, as his fingernails have been painstakingly prised from the boardroom table, Vivendi's stock price has collapsed.

This is not as illogical as it seems. Vivendi may ultimately be better off without its Napoleonic helmsman. But first investors must confront his legacy. Recent experience suggests that superstar chief executives have a habit of leaving huge messes behind when they leave. Indeed they only go when the game is up, or almost up. Think of Enron after Jeff Skilling, Worldcom after Bernie Ebbers, Energis after Mike Grabiner or Marconi after Lord Simpson. All imploded after the top man quit.

Hopefully Messier hasn't undermined Vivendi in quite the same way. But there may be more bad news to come out – if only as his successor clears out the Augean stables. And even if there isn't, investors are still probably wise to be wary of the group's stock. In current market conditions, it pays to be on the safe side.

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With the departure of Jean-Marie Messier, Vivendi looks ripe for a break up. After all, its illogical structure was only held ever together by the force of J6M's personality. Shareholders should in theory welcome such a development. On a sum-of-the-parts basis, the group should be worth far more than its shrivelled stock price suggests.

Vivendi's US media and leisure businesses are worth about E19bn, based on sector sales and ebitda multiples. The publishing unit, which includes internet games, is worth E8bn while the European pay TV business, mainly Canal Plus in France, is another E7bn. Vivendi's telecoms assets are worth about E8.5bn in total. The group also has about E9.5bn in various equity stakes, including EchoStar, Dupont and Sithe Energies in the US. Lastly, Vivendi still owns 40% of its utility unit Vivendi Environnement, valued at E4bn on the market. This all adds up to an enterprise value of E56bn. Subtract the E19bn in net debt and the equity value is E37bn, or about E34 a share. That is double the present share price.

But just totting up notional values isn't the same as actually cashing those assets. And it is a very moot point whether value maximisation is anywhere near the top of the agenda at Vivendi right now. In the way stand – among other things – banks and politicians. Vivendi has E6bn in debt and contingent liabilities to pay by the end of the year and doesn't have the credit lines to cover this. If its banks, mainly Societe Generale and BNP Paribas, don't come up with some more money, assets will have to be flogged immediately just to avoid a liquidity squeeze. And if the banks do supply new loans, they will probably demand pretty big asset sales fast anyway. Smelling a fire sale, Rupert Murdoch's News Corp has just revised its offer for Vivendi's Italian pay-TV business.

Even if the banks can be squared, there is the politicians to contend with. The French government is likely to interfere in any sale of Cegetel, Canal Plus or Vivendi Environnement in an attempt to keep those assets French. At best, that would limit any premium that could be obtained for them. At worst it might mean retaining the French bits within some sort of shrunken Vivendi. That would just leave an unattractive rump conglomerate. Moreover, even selling the US assets could be problematic. Vivendi's rivals, such as Disney, could face anti-trust hitches if they tried to bid. Speculation is that there may be only one buyer for those assets, Barry Diller, and he isn't interested in music. This break-up isn't going to be easy.