Standard & Poor's cuts credit ratings to junk status
Shares in the media company fell 20 percent to 12.60 euros by mid-afternoon Wednesday after Standard & Poor's cut its credit and debt ratings to junk status because of the cash flow numbers, Reuters reported.
Vivendi built up 19 billion euros in debts over the last several years under former CEO Jean-Marie Messier, who was ousted by the board in July. Messier had turned a water company into the giant media business in only six years.
The new chairman and CEO Jean-Rene Fourtou said that despite the value of its assets, the company is facing a liquidity problem.
"That's why the first thing I did upon my arrival was to negotiate, with the help of the chairman of the finance committee of the Board Mr. Bebear, a new bank facility of 1 billion euros. This new money has not yet been used, Fourtou said.
"As announced in July, we are presently negotiating a new facility of 3 billion euros which will include the first 1 billion euros. We have reached a framework for agreement with the same seven banks and we expect this new facility to be signed by the end of August. This will allow Vivendi to buy the time necessary to implement the best conditions for the necessary sale of businesses."
Vivendi said it would not announce any asset sales before their completion.
As part of the company's strategy to reduce about €10 billion in debt as soon as possible, Fourtou announced a multi-point action plan:
• Sell some of Vivendi Universal's businesses
• Immediately reduce the cash drain on the company, especially that of the non-French activities of the Canal+ group, Internet activities and corporate overhead. Fourtou said that decisions have already been made on these issues.
• Manage the ongoing businesses to enhance their cash flows.
The company plans to erase €5 billion of its debt within the next nine months, and a total of €10 billion, within two years' time.
Despite good progress in revenue and operating income growth, Vivendi's net income before exceptional items and amortization of goodwill is a loss of 0.06 euros per share.
"I would like to underscore that this negative income is the result of a loss coming from the businesses that Vivendi owns more than 50% of, offset in part by positive results from the companies Vivendi owns less than 50% of," Fourtou said. "This represents a challenge as Vivendi can not access the cash flow generated by companies it owns less than 50% of."
The accounts were presented under French GAAP without a reconciliation to US GAAP. First-quarter results had been presented in US GAAP. Fourtou promised a reconciliation to US GAAP in September with the half year audited figures.
"This company has extraordinarily strong international assets. I am totally committed to restoring a stable financial situation and enhancing profitability. I am confident we shall be successful," Fourtou said.
The Vivendi Universal board is expected to make some more decisions and announcements at its September 25 meeting.
