CNNfn Interview on Vivendi Universal

May 29, 2002

BRUCE FRANCIS: Joining us now with more on the challenges facing Vivendi Universal and its chief is George Nichols.

KATHLEEN HAYS: George is the stock analyst at Morningstar, and he's joining us today from Chicago.

So welcome, sir. And tell us, what do you think the outlook is? Allan Chernoff just went through a number of assets that Vivendi could sell, presumably, to improve its balance sheet, you know, help pay down its debt. What are the prospects for that happening?

GEORGE NICHOLS: Thanks for having me.

Well, exactly as you mentioned, the debt load is really crushing, and combined with the fact that the strategy for the company overall really looks muddled -- after all, it prides itself on being a media and communications company -- yet about half of its revenue comes from the legacy water utility business.

So if you put two and two together, it would make a lot of sense if the company can come up with a clear timetable for divesting most or all of its stake in the water utility business, and applying the proceeds towards lowering the crushing debt load.

FRANCIS: I guess the argument for keeping it together would be, you have these companies in environmental that probably have more predictable earnings, which means good cash flow if not high profit margins. That helps balance out the feast-or-famine nature of the entertainment business.

Has that proved to be any benefit to shareholders?

NICHOLS: Well, in that sense, there is some truth to that argument, because the company, the water utility business, continues to generate good cash flows. But the key is, the crushing debt load and the fact that the company really needs to focus on an area of competence suggests that eventually they will divest part or all of its stake in the business.

HAYS: Do you think there's anything to the idea that there's enough pressure on Jean-Paul Messier to step down that that might be part of the outcome? Or is he just so closely identified with this company, and still getting enough support from other French business leaders that that's just sort of interesting, maybe, but idle speculation?

NICHOLS: Well, as you know, Messier's under attack from all sides right now. Not only are American shareholders upset, but a lot of French politicians, even Chirac and Jospin singled him out for criticism.

So he's not really popular right now. However, I think the board of directors during this marathon session will give him more time to try to turn around this company, because as for the management right now at Vivendi, I don't think there's a clear number two that could easily fill his shoes should he leave.

FRANCIS: Now, should we infer anything from this very long board meeting? I mean, seven hours and counting, that's pretty hefty. Or should we just take that as a sign of the complexity of the task that faces them?

NICHOLS: I think it's more the latter. With Vivendi, it's always hard to tell what's going on in the back office. The back office has been kind of a soap opera drama lately. So I'm sure they're trying to hammer out a strategy.

And with a company as complex as this one, I'm sure they're trying to work out every little detail, and that's taking a while.

HAYS: OK, George, just have to leave it there, but in conclusion, I -- we'll put you in the column of someone who maybe doesn't think investors should be buying the stock right now?

NICHOLS: That's right, we're not big fans of the stock.

HAYS: OK. Well, George Nichols, will -- from Morningstar, thank you. We can see why you have that view.

NICHOLS: Thanks.