Vivendi Universal S.A.

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Vivendi Universal S.A.

42 avenue de Friedland
75380 Paris Cedex 08
France
Telephone: (1) 71 71 10 00
Fax: (1) 71 71 10 01
Web site: http://www.vivendiuniversal.com

Public Company
Incorporated: 1853 as Compagnie Générale des Eaux
Employees: 290,000
Sales: $40.1 billion (2000)
Stock Exchanges: Paris New York
Ticker Symbol: V
NAIC: 513322 Cellular and Other Wireless Telecommunications; 51331 Wired Telecommunications Carriers; 51321 Cable Networks; 51312 Television Broadcasting; 22131 Water Supply and Irrigation Systems; 56292 Materials Recovery Facilities; 51211 Motion Picture and Video Production; 512199 Other Motion Picture and Video Industries; 51121 Software Publishers; 51223 Music Publishers

Formerly known as the Générale des Eaux Group, Vivendi Universal S.A. operates as a leading entertainment conglomerate with interests in music, publishing, television and film, telecommunications, Internet-related businesses, and the environment. Through its 2000 purchase of Seagram Company Ltd., it gained control of Universal Music Group and Universal Studios, securing its position as the leading music company with a 22 percent share of the world music market. Vivendi Universal Publishing is the third largest concern in the global publishing market and holds the number two position in the educational publishing segment of the industry. The company also owns CANAL +, the leading European pay-television firm with over 15 million subscribers, and Groupe Cegetel, the leading private telecommunications operator in France. The firm also holds a 63 percent share in Vivendi Environnement, a leading environmental services subsidiary that operates the number one water company in the world.

Origins

Compagnie Générale des Eaux was founded in 1852 during the reign of Napoleon III and is often described as France’s first capitalist venture. The company was authorized by imperial decree on December 14, 1853, and from the start benefited enormously from the emperor’s personal interest, as well as from support and investment from the international business community in Paris, London, and Lyons, which had studied the water supply companies of the United States and the United Kingdom and realized rich pickings could be had. The list of founders included the Rothschild family, a Fould, a Lafitte, the Duc de Morny—the emperor’s half brother—and a large proportion of the imperial nobility. Shareholders included James de Rothschild, who had the largest single subscription of 5,000 shares, and a cross-section of members of the nobility, stockbrokers, and bankers. The initial capital was FFr 20 million which was raised from an 80,000 share subscription.

Early History: Late 1800s

The political and financial influence of its founders and shareholders gave the new company a high profile from the start, but the company also caught the mood of the day with its declared objective of providing “assistance for municipal authorities in implementing schemes of fundamental importance to public health.” Not only was the notion of water-for-all part of a new municipal socialism which had already taken root in the United Kingdom and Germany, but also France’s growing industries were becoming insatiable in their need for water and power. Without an industrial base, France could not compete with its neighbors, the United Kingdom and Germany. If the foundation of Compagnie Générale des Eaux was a calculated political move, it was also an astute financial one. “We shall be opening up a mine, the wealth of which has not been explored,” reported the first board of management to the shareholders, which claimed that “as the first occupants of this mine, it will be our privilege to select and exploit the best seams.” The shareholders were not disappointed.

Projected returns of 4 percent were realized at 25 percent from the first year of business. Lyons and Nantes headed the list of municipal authorities anxious to receive Générale des Eaux water. Within months, a 99-year agreement had been concluded with Lyons to provide water for domestic and industrial consumption. For an initial investment of FFr 6 million and operating costs of FFr 80,000 per year, Générale des Eaux guaranteed a gross annual income of FFr 381,500 before a drop of water had even flowed through the pipes. A contract with Nantes followed in 1854, with Générale des Eaux undercutting the haphazard services of current suppliers, but still managing to make a healthy 20 percent profit.

Securing the contract for the Paris water supply took a little longer. Initially turned down for the bid to supply the capital’s water, Générale des Eaux began buying into small local water companies in the suburbs. When in 1860 the suburbs were annexed to the city, the company was in a strong position to negotiate with the prefecture of the Seine and the city of Paris authorities. Slow penetration into and around the desired market was a clever strategy, and became something of a hallmark of Générale des Eaux’s acquisition policies thereafter. The seven-year wait was worth it. Générale des Eaux won a 50-year contract to supply Paris and the suburbs. The city of Paris, for its part, took possession of all water machinery and installations which had previously belonged to the company. Générale des Eaux guaranteed a supply of water which they charged back to the authorities. As the population of Paris grew and the demand for both domestic and industrial water increased, the water supplier saw its profits grow.

The character of Générale des Eaux was beginning to emerge. The company preferred to deal with large municipal authorities which would contract agreements for long periods of time and sought out projects which would bring high profits to enable greater investment. It also displayed a strong speculative and entrepreneurial streak, the latter of which is particularly remarkable. Générale des Eaux anticipated the growth of the Côte d’Azur and the so-called Emerald Coast of Brittany some 20 to 30 years before the resorts became fashionable, installing water supplies and drainage systems in Nice and the surrounding areas from the 1860s and subsequently supplying Antibes, Menton, Hyères, and Monaco in the 1870s and 1880s. Towards the end of the century, the coastal towns and large cities of Brittany and Normandy were supplied by Générale des Eaux.

Despite heady successes in the company’s first 50 years, the end of the century brought an unforeseen problem. In 1892, there was a major typhoid epidemic in Paris. The authorities acted by ordering a systematic sampling of water for laboratory analysis, and in 1902 the Public Hygiene Act laid down standards for public health in relation to the water supply. The connection between water supply and cholera and typhoid was finally understood. From now on municipal authorities demanded not just efficiency but guarantees that the water being delivered for domestic consumption was clean and disease-free. For Générale des Eaux, the Public Hygiene Act meant hefty investment in research and new machinery. Treating waste water before it ran back into the clean water supplies also became a priority.

There was, too, a new competitor in the field. Société Lyonnaise des Eaux et de L’Eclairage was founded in 1880 and by the start of the 20th century had established itself as a force to be reckoned with. From then on, something of a race developed between the two companies to acquire market shares in the supplying of water to unserviced municipalities. Between 1900 and 1940 the rate at which water supply networks spread through France accelerated with each decade. Both companies expanded their areas of influence by buying up local water companies and overhauling their operations, so that by the outbreak of World War II Compagnie Générale des Eaux and Société Lyonnaise des Eaux et de L’Eclairage supplied 50 percent of all town dwellers.

Guy Dejouany Joins the Firm: 1950

Dominating the fortunes of Compagnie Générale des Eaux in the postwar years was the personality of Guy Dejouany. An engineer by profession, he was educated at the Ecole Polytechnique and, after appointments in Metz and Paris, joined Générale des Eaux in 1950. His rise through the company was swift. A director in 1960, he became deputy director general in 1965, director general in 1972, and president and director general in 1976. In the 1960s he was instrumental in the development of a thermal energy program, showing himself to be a strong advocate of diversification beyond the traditional water concerns. Moreover, he turned the company from a fairly institutional concern into a dynamic, highly diversified group which, in 1991, was one of the most successful companies on the Paris Stock Exchange. Dejouany has remained a decidedly nonpublic figure, declining to give interviews and running an unusually small headquarters with only 15 managers. Dejouany was involved in the first tentative moves, in the 1970s, into urban cleaning and maintenance, waste, electrical contracting, house building, and construction.

Company Perspectives:

Our vision is to be the world’s preferred creator and provider of entertainment, education, and personalized services to consumers anywhere, at any time, and across all distribution platforms and devices.

By 1981, Compagnie Générale des Eaux was beginning to make the headlines with its profits of FFr 331 million. Ironically, its attractiveness nearly brought about its downfall. At the start of the 1980s, 75 percent of shares were held by small investors, headed by Dejouany. In March 1981, Compagnie Générale d’Electricité announced a 15 percent stake, a significant interest held by a large company. Two years later Saint-Gobain, the glass and pipe manufacturer, which had already bought enthusiastically into Olivetti and Bull CH Honeywell only to have the government insist that it pull out, announced a 33 percent holding in Compagnie Générale des Eaux. Months of complicated maneuvers on the Paris Stock Exchange had been necessary, but Générale des Eaux had exposed itself to the risk of a buying by a large company when it issued new shares at the start of 1983 to raise capital for investment. The announcement brought crises within the water company and within the government. Dejouany and a number of government critics complained that Saint-Gobain, one of France’s six major companies nationalized in 1982, was attempting a creeping nationalization of the water company. Saint-Gobain replied that it was merely seeking to expand its business by ordinary means, but was soon requested by the government to cut its stake to 20.7 percent. Dejouany further redressed the balance by asking Schlumberger, the Franco-American service and electronics group, to buy a 10 percent share at a cost of FFr 550 million to offset Saint-Gobain’s interest.

Expansion: 1980s–90s

This share purchase ended the crisis and signaled the end, too, of the growing pains of Générale des Eaux. From this moment on, the company went from strength to strength, multiplying its interests abroad and buying into some of France’s leading companies at home. The results were dramatic. The 1980s, as a whole, saw sales at home increase seven and a half times, from FFr 11.5 billion to FFr 76.5 billion, and sales abroad multiply 35 times, from FFr 630 million to FFr 22 billion. Net profits rose from FFr 331 million in 1981 to FFr 766 million in 1986 and then took off sharply to finish at FFr 1.8 billion in 1989.

The weighty program of investment and activity abroad produced both admiration and controversy in countries targeted for Générale des Eaux treatment. By 1991, Générale des Eaux was the second largest water distributor in Spain and the third largest distributor of bottled water in the United States, and also supplied water in Portugal, Malta, and Italy. It collected waste in Bogota and Prague, cleaned the streets and underground system of Madrid, supplied cable television in Montreal, and managed industrial waste and thermal power from California to Benelux.

Générale des Eaux also moved across the English Channel. Britain in the late 1980s, with a water industry heading for privatization and local authorities beginning to put many of their service contracts out for tender, was ripe for investment. Lyonnaise des Eaux and Société d’Aménagement Urbain et Rural (SAUR) made large tenders for the ten regional water companies, Lyonnaise paying £47.6 million for Essex Water in June 1988, and SAUR paying £58.6 million for Mid Southern Water in January 1989. Générale des Eaux, in contrast, focused on buying shares in a number of smaller companies, including Three Valleys, Folkestone & District, Mid-Kent, Severn and Trent, and Bristol, and looked to the wider areas of energy, waste, healthcare, construction, and cable television to establish a foothold in Britain. The foothold was designed to be flexible. When British electricity companies were privatized in 1990, Générale des Eaux dropped some of its water interests and bought into Associated Electricity. Similarly, when television franchises were put up for bids in 1991, Générale des Eaux bought shares in a number of cable television operations. Less expected was the purchase of American Medical International’s chain of private hospitals in Britain in March 1990 and an 83 percent stake in Norwest Hoist. In June 1991, Générale des Eaux’s U.K. waste company Onyx announced a seven-year rubbish collection contract with the city of Liverpool, the latest of twenty such contracts with municipalities all over Britain.

The progress of Générale des Eaux in Britain mirrored the development of the company in France during its early days in the 19th century. The profits were just as rich—in 1990, the company made £900 million in Britain, which now represents almost one-tenth of total group sales revenue worldwide. In the general spread of its international and home operations there were similarities, too, to company behavior in the previous century and during the early 1990s. Générale des Eaux was responsive to current environment issues. In May 1990, it paid $100 million for a 16 percent stake in Air and Water Technologies, a major pollution-control company based in New Jersey in the United States. Air, water, and soil pollution prevention was high on the list of priorities for Générale des Eaux in the 1990s and its activities by that time had already earned it attention from Europe’s press for its environmental concerns.

By 1991, Générale des Eaux’s interests in cable television and cellular car phones included a 21.6 percent share in CANAL+, 90 percent of Générale d’Images, and 80 percent of Compagnie Générale de Vidéo-communications, making Générale des Eaux the leading operator of cable networks in France. Although the 1991 Gulf War boosted viewing figures, cable television had yet to take off in a big way. It was thought, however, that the mid-1990s would see a large increase in the subscription base. The launch of cellular phones showed quicker returns. Between the inception of the service in March 1989 and the end of the year, there were 10,000 subscribers. At a European level, the earphone subsidiary, Compagnie Financière pour le Radio Téléphone, worked with BMW and Veba in Germany to install telephones directly.

Key Dates:

1852:: Compagnie Générale des Eaux is founded.
1860:: The company secures a 50-year contract to supply water to Paris and its suburbs.
1981:: Profits reach FFr 331 million; Compagnie Générale d’Electricité purchases a 15 percent stake in Générale des Eaux.
1983:: Saint-Gobain is forced by the French government to cut its stake in the firm.
1996:: Jean-Marie Messier is named chairman and begins a reorganization program.
1998:: The company changes its name to Vivendi.
2000:: After merging with CANAL + and Seagram Company Ltd., the firm takes on the name Vivendi Universal S.A.
2001:: Mp3.com Inc. and Houghton Mifflin Company are acquired; plans are set in motion to purchase USA Networks Inc.

In addition to entering the communications sector, Générale des Eaux had bought into a number of French blue chip companies including, since 1986, Saint-Gobain. Saint-Gobain’s major subsidiary, Société Générale d’Entreprise, which had in turn been acquired from Compagnie Générale d’Electricité, was bought out by Générale des Eaux in 1988, thereby giving it a major position in France’s construction industry. Phénix, Seeri, and Sari added to Générale des Eaux’s command in this area, with projects such as the La Defense building in Paris. In Paris, the company cleaned the Louvre, the Métro, the Ministry of Finance, and the Museé d’Orsay art gallery, and collected waste for Peugeot, Air France, the SNCF (Société Nationale des Chemins de Fer Français), and Nestlé.

Changing Focus; Changing Names: Mid- to Late 1990s and Beyond

Continuing with its expansion efforts, Générale des Eaux underwent a series of strategic changes during the mid-to-late 1990s that turned the company into a major entertainment and environmental concern. In 1996, Dejouany retired, leaving Jean-Marie Messier to take over the helm. The 39-year-old executive quickly began a hard core restructuring effort with a focus on its environmental and communication-related businesses and began selling off over $25 billion in holdings. At the time, Générale des Eaux was referred to as a “corporate octopus” with over 2,200 subsidiaries involved in the property, construction, health, energy, mobile phones, amusement parks, cable television, and railway industries. A 1996 article in The European claimed that the company had “begun to spin out of control following reckless investment, mainly in property, the disappointing performance of the private healthcare division, and problems in maximizing investments in mobile phones and cable TV, which have lagged behind in France.” The article went on to state that “there have also been complaints about high prices and low service in the water sector.”

As part of Messier’s grand scheme, he implemented a strategy on which the company was focused on gaining world leadership in the environmental services industry, as well as in both the media and communications industries. During 1996, plans were set in motion to create the Groupe Cegetel, a subsidiary that would cover fixed and mobile phone businesses in France—the telecommunications market in France was deregulated in 1998. As part of its push into publishing, the company acquired a 30 percent interest in Havas in 1997 and then merged with Havas the following year. It afterward purchased Cendant Software Corp., an electronic publishing firm. It was also during 1998 that the firm adopted a new name, Vivendi, chosen to suggest life and vitality.

Vivendi marked its entrance into the new millennium with a $34 billion stock purchase of Seagram Company Ltd. The deal added Universal Music Group and Universal Studios to Vivendi’s holdings, giving it control of the world’s largest music company. It also purchased the remaining shares of CANAL + and then changed its name once again to Vivendi Universal. During this time period, companies that had traditionally focused on either content or distribution began seeking out strategic purchases that would align both content and distribution holdings. The merger of America Online Inc. and Time Warner was one such purchase that signaled the industry’s changing landscape. Messier commented on the AOL deal in a 2001 Time International article, stating that “nothing in the world of communications would ever be the same again. Being strong in content is not enough. You also need to own part of your own distribution network.”

As such, Vivendi began to seek out a distribution partner that would give it a stronger foothold in the U.S. market. Along with its purchases of U.S.-based publisher Houghton Mifflin Company and Internet music service provider mp3.com Inc., the company announced its intent to purchase the entertainment assets of USA Networks Inc. for over $10 billion in December 2001, along with a ten percent stake in EchoStar Communications Corp., the second largest satellite-television operator in the U.S. The USA Network deal would give Vivendi access to over 84 million U.S. television viewers and bring it closer to competing with the likes of rival AOL Time Warner.

In just seven years, Messier had transformed the Générale des Eaux Group of the 1800s into a leading entertainment conglomerate with net income of $2.1 billion in 2000 and sales of nearly $50 billion in 2001. While the company’s recent acquisition spree left it with debt equaling $18 billion—a 50 percent debt-to-equity ratio which was higher than most of its competitors—management was confident that the firm was on the right track to securing future growth. Messier, in fact, held strong to his belief that Vivendi Universal would become the world’s preferred creator and provider of entertainment.

Principal Subsidiaries

Universal Music Group; Vivendi Universal Publishing; CANAL+; Groupe Cegetel; Vivendi Telecom International; Vivendi Universal Net; Vivendi Environnement S.A. (63%); MP3.com Inc.