Vivendi to Pay A&M Founders

For Vivendi Universal SA, when it rains, it pours. Just two weeks after chief executive Jean-Marie Messier ousted Pierre Lescure, the president of France's Canal Plus television company—an event that caused demonstrations in the streets of Paris and paroxysms of nationalistic fervor among France's 18 presidential candidates—a complicated stock deal got vastly more complicated, resulting in a $250 million payment due to A&M Records founders Herb Alpert and Jerry Moss.

Vivendi says it will make the payment, although it will have to borrow money to do so. Since January of this year, Vivendi's stock has lost approximately half its value. The payments were triggered by a provision included in a contract Seagram, Ltd. signed when it acquired Rondor Music International, Inc., the publishing wing of A&M, in August 2000.

Terms of the original deal included $12.5 million in cash for the two partners, 4.8 million Seagram shares (valued then at $350 million), and a promise to pay Alpert and Moss $250 million in cash if the stock price dropped below $37.50 for ten consecutive days—which it did in April. Vivendi "inherited the deal," according to the May 3 edition of the Wall Street Journal, when it acquired Seagram in December 2000. Seagram stock converted to Vivendi Universal shares, which have been below the critical level since April 3. The Rondor Music obligation was not accounted for in any of Vivendi's financial projections. Such "off-book accounting" can blindside a company without sufficient cash reserves to carry it through emergencies.

Vivendi has been the center of a French maelstrom since the April 15 resignation of Canal Plus second-in-command Denis Olivennes, and the dismissal four days later of Canal Plus chief executive Pierre Lescure. The television network has lost money for each of the past five years, a situation Messier hopes to turn around with the appointment of a more bottom-line–oriented replacement for Lescure. Lack of profitability was the last thing on the minds of French protestors, who fear the Americanization of French film and television. Last year, Messier was widely criticized in France for moving his family to New York to oversee Vivendi's operations from the "capitol of the world." Vivendi is the parent company of Universal Music Group and Universal Pictures, and operates the Universal theme parks in the United States.

Alpert and Moss formed A&M Records in 1962, and retained ownership of Rondor Music Publishing when they sold A&M to PolyGram NV in 1989. (Rondor owns the copyrights to more than 60,000 songs, including compositions by the Beach Boys, Bruce Springsteen, Otis Redding, Isaac Hayes, and Michael Jackson.) Seagram acquired PolyGram in 1998. That acquisition prompted a $200 million lawsuit by Alpert and Moss, who contended that it violated a provision of their A&M sales agreement with Polygram. In August 2000, they dropped the lawsuit as part of Rondor's acquisition by Seagram.

Vivendi was originally a French water utility company, but has made itself into an international media conglomerate through a series of mergers and acquisitions. Vivendi has extended its tentacles into several formats for the distribution of entertainment—including the buyout of MP3.com, an ill-advised partnership with Napster, and a $1.5 billion purchase of direct broadcast satellite service EchoStar's preferred stock, announced this past December. Some kibitzers are betting that the combination of heavy debt and declining stock prices will soon have Vivendi spinning off its assets. Curiously, despite the parent company's woes, and despite the music industry's prolonged slump, Universal Music was the only one of the "Big Five" to report a profitable 2001.

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