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Will Vivendi Sell off Internet Assets?

July 2002

Will Vivendi Sell off Internet Assets?

by Erin Joyce
July 5, 2002

Will French media conglomerate Vivendi Universal (Quote) sell off parts of its money-losing VUNet Internet division assets or stay the course with its media content/distribution strategy?

That's one of the questions facing the world's second-largest media company after a turbulent week in which it ousted CEO Jean-Marie Messier and named Jean-Rene Fourtou to replace him.

The AOL Time Warner (Quote) rival, which gobbled up cable TV, film studios, publishing companies and Internet assets in pursuit of media convergence, said it would spend the next two weeks looking for ways to increase its cash in order to ease its estimated $33 billion debt load.

Vivendi's Vizzavi, the mobile, PC and interactive TV portal it launched with wireless carrier Vodaphone in 2000, has often been cited by analysts as a cash-draining venture that should go, despite the company's statement that it's committed to the portal strategy.

"I think the idea of a separate portal for wireless phones is worse than a day late and a dollar short," said Ken Marlin of mergers and acquisition advisory firm Marlin & Associates. "The general interest portal game is over. Now, it's AOL, MSN, Yahoo! and a number of speciality niche providers" that dominate.

Vizzavi, part of the VUNet Internet division, has said it will reach break-even by 2003, but it may no longer have the luxury of time given the company's mandate to raise cash and shore up its sagging stock price.

"Vivendi is an interesting hodge-podge of assets," said Jeffrey Dearth, a partner with media-focused investment firm DeSilva & Phillips, referring to Vivendi's pay TV company Canal Plus, Universal movie studio, publisher Houghton Mifflin, online music company MP3.com, 10 percent chunk of satellite broadcaster Echostar, plus phone carrier and water treatment assets.

It obviously needs to retool and rethink some of its new media investments, "but these [properties] are also drops in the bucket, relatively speaking," Dearth said, given how far new media values have declined since the Internet bubble burst. (The VUNet unit lost about USD $205 million in earnings before interest, taxes, depreciation and amortization costs in 2001.)

In addition to Vizzavi, the VUNet unit also houses gaming properties which include Flipside.com, uproar.com, iWin.com and virtualgegas.com and online education site education.com, as well as music site MP3.com.

"First of all, it's not going to get (back) the $372 million it paid for MP3.com" in 2001, Dearth said. "And there is still great value in the property," which serves as a backbone for the online music service http://www.pressplay.com, its joint music venture with Sony.

To sell off all of its Internet assets "would be throwing the baby out with the bathwater."

If Vivendi holds on to its cable properties, for example, which the new board is expected to do, it will need a Web distribution component, said Dearth. "Its overall strategy, content on distribution platforms, is ultimately where they were headed."

Whether the new team running Vivendi is still interested in owning media content and the distribution systems when it needs to raise cash is the question of the moment.

What might be more interesting and helpful for the company, Marlin added, would be if USA Interactive's CEO Barry Diller were to help raise money from investors interested in buying out Vivendi Universal Entertainment, the movie and film library it bought from Diller's USA Networks for $10.3 billion in December.

"In keeping with its roots as a water utility, Vivendi could say 'we're going to be piping for the Internet. We'll do the mobile phone opportunities, look for infrastructure related acquisitions, but we're going to get out of the content business,'" Marlin said.

"That might help it retain some degree of credibility, by saying it has sharpened its focus."

Vivendi spokesman Anita Larsen said it was premature to speculate about any business unit that might be for sale, beyond the company's statements that it has created a special committee to look for ways to increase its cash position.

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