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Vivendi Loses $12 Billion

The cash-strapped company’s disclosure led to even larger than expected write-downs of its media assets. Analysts had predicted a value loss of between $4.9 billion and $9.8 billion; Vivendi announced a downgrade of $10.8 billion with an additional financial provision of $3.3 billion.

Following Wednesday’s announcement, debt-rating agency Standard & Poor’s cut Vivendi’s long-term corporate credit rating to junk-bond status and warned of another downgrade if Vivendi does not get new funding within a month.

Vivendi’s board said it was planning sales of non-core assets like Houghton Mifflin to help forestall a cash crisis and pay off its massive debts.

Vivendi acquired Houghton Mifflin, the U.S.-based publisher of popular titles like The Lord of the Rings, last year for $1.7 billion.

The planned sale of the publishing company could be the first step towards dismantling the media and entertainment conglomerate constructed by former chairman Jean-Marie Messier during a two-year buying spree.

Messier was credited with transforming Vivendi from a French utility company into a global media conglomerate, rivaling the likes of AOL Time Warner and Walt Disney Co.

Vivendi’s assets include Universal Studios and Universal Music Group, which owns record labels with top-selling artists such as U2 and Eminem. Nonetheless, the company still receives the majority of its revenue from its utility businesses.

Under pressure from Vivendi’s board and after poor financial results, Messier resigned last month, leaving the company saddled with an $18.6 billion debt.

Since replacing Messier on July 3, newly-appointed CEO Jean-Rene Fourtou has sought to divest Vivendi of its non-core businesses over the next two years to reduce debts and boost shareholder value.

“In the short term, due to the structure of our debt, Vivendi Universal is facing a liquidity problem despite the value of our assets,” Fourtou said in a statement Wednesday.

Fourtou said Vivendi planned to “cut immediately the cash drain of the company — mainly the non-French activities of the Canal+ Group, the Internet activities and the huge level of corporate overhead.”

Vivendi’s board had previously approved a business overhaul of Canal+, its French television unit, to streamline operating costs and improve profits.

Fourtou said he expected Houghton Mifflin, for which there were “numerous potential buyers,” would be sold within six months.

Vivendi’s board also approved the sale of other assets, like the Italian digital TV platform Telepiu, the company’s stake in Echostar satellite broadcasting and the Paris Saint-Germain football team.

Vivendi’s shares plunged 25 percent on the Paris bourse after news of its junk-bond status. In late trading on the New York Stock Exchange, Vivendi shares fell 23.9 percent, down to $11.67.

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