VIVA VIVENDI

If the Chairman and CEO of Vivendi bears a contented expression on his face, it is perhaps not difficult to see why. For Jean-Marie Messier recently described his company’s growth and improved performance in respect of this half-year financial as merely ‘satisfactory’. Which is not how most companies would refer to net income up 29% to 783m Euro, net sales up by 22.4% to 18.2 billion Euro and internal growth of over 11% for environmental services and communications. Moreover, operating income was up by a massive 75% to 908.5m Euro, representing a 40% increase on a like-to-like consolidation basis and at constant exchange rates. Satisfactory indeed!

But then again Vivendi is not your average run-of-the-mill company – and even for those who live and work in the world of utilities it can be difficult to comprehend the size of Messier’s group. Certainly the words international conglomerate do not give the full flavour. In fact Vivendi Utilities groups all activities in the main urban services that contribute to what senior management refers to as quality of life. Whether that be through providing water and wastewater services through Génerale des Eaux, producing daily electricity through Sithe Energies, managing heating networks through Dalkia, collecting, recovering and recycling waste through Onyx, or operating transport networks through CGEA Transport. Hardly surprising, n’est ce pas, that Vivendi has forged itself into a position of being the world leader in utilities net sales for 1998 of 15.4 billion Euros with estimated net sales for 1999 now running at 20 billion Euros. Vivendi has only recently established itself as the leading distributor of public drinking water in the world – even though the company has been providing water and wastewater management services in Europe for 150 years. Today it operates more than 7,000 water and wastewater treatment systems, supplying water services to 80 million people world-wide. In France alone, Vivendi’s water facilities distribute 635 billion gallons of potable water to 8,000 communities. And just to round up on the impressive statistics, it is worth noting that Vivendi employs some 230,000 people, approximately 65,000 of them in countries other than France, in addition to operating one of the largest private laboratories devoted to water in the world.

That said Jean-Hugues de Lamaze, a London-based analyst with Credit Suisse First Boston, who has been following Vivendi (previous incarnation included) for over a decade has nevertheless highlighted the issue of clarity of identity. "It seems that investors are raising some questions about overall strategy. That makes placing a value rather difficult. Vivendi’s role in media and communications used to be crystal clear – with Havas and Cegetel. But working on the convergence of all of these activities is a little more difficult for the market to quantify. That’s only to be expected, in a sense, because these things remain at an early stage. To see Vivendi moving into Internet, for example, the market feels that it is probably good news – but finds it difficult to come up with a precise figure. So I think its fair to say that the strategy looks a little more unclear than might have been the case in the past. Converge and pan-Europeanism are all well and good – but the market would no doubt feel than an acquisition in telecoms would be the next logical step."

Vivendi move into communications began back in the 1980s, mainly through the creation of the SFR mobile telephone operator and as a founding shareholder in the Canal Plus encrypted television channel.
The company is now expanding rapidly in this sector, organised around three activities: telecommunications, publishing and multimedia, and audio-visual. The convergence of these activities is creating a commercial synergy designed to strengthen customer loyalty. Messier is also intent upon extending its Internet offer, which provides an excellent support for the increasing convergence between content, image and sound.

And yet rumours have persisted that Vivendi might want to move out of telecoms altogether. It hardly seems likely. For the company recently announced the creation of a joint company to capitalise on the expected convergence of computing and telecommunications. For the French utilities and communications group already has a 49% stake in the PAY-TV company Canal Plus. The strategy is simple and straightforward: to cross-sell products mutually developed by the groups. Hence the expected birth of a new company temporarily called Vivendi Plus. Unless he is an extremely shrewd poker-player – and no one doubts his subtlety and negotiating skills – Messier’s talk does not sound like a man poised to move out of telecoms. "Our ambition is to offer interactivity with the subscriber, who should not have to worry about the technology or the infrastructure."

It is worth taking a closer look at Messier himself, for he is a most remarkable man, the driving force behind the dynamic momentum of his company. It could be claimed, and with some justification, that he is the crème de la crème de la crème. A graduate of two of France’s high-flying academic institutions the Polytechnique and the Ecole Nationale d’Administration, if his rise to the top has been meteoric, then it was not because papa was himself a polytechnicien but thanks to brain-power and ability alone. The son of typically middle-class parents from the Alpine city of Grenoble, Messier does not fit into the classical mould of the clubby French elite that networks itself into top positions in both government and industry. Despite this lack of pedigree, however, when Messier was appointed head of Générale at an emotional Board meeting just a few years ago, he had still not hit forty. Perhaps one should not have expected otherwise from a man who was heading up the then Finance Minister Edouard Balladur’s private office at the age of 29, where he was given responsibility for overseeing the conservative government’s privatisation programme.

Hardly surprising, therefore, that Messier should be entirely at ease when handling large sums of money. And equally at ease, it would appear, when it comes to spending it. For the Vivendi boss has been on an unprecedented spending spree in recent months, doubling his company’s net debt to €12.7 bn from a year earlier. This was largely attributable to the €6.2 bn purchase of Palm Desert-based U. S. Filter Corp, the biggest US acquisition by a French company. Another shrewd move, no doubt, for the water industry in the US generates more than $80 billion in annual revenue – about five times the sales of Microsoft. It was this deal which allowed Vivendi to claim the crown as the world’s largest water company, with 75 million customers. And while the price tag might have been considered steep in absolute dollars – Messier chose to settle in cash – he might well have secured a bargain by paying $31.50 a share for stock that was as high as $43.75 just a couple of years earlier. One of the reasons, undoubtedly, why Vivendi’s recently released first half-financial results revealed that impressive 29% jump in net profit.

It has also been reported that Messier was set to pull Vivendi out of energy altogether. The theory being that that freeing up the group’s 59.7% holding in the U S power generator Sithe Energies would improve the group’s credit rating – in addition to providing some much needed cash for further acquisitions. When asked to comment on this Alain Delrieu, who heads up Messier’s press and public relations department, confirmed the fact that it is his boss’s intention to dispose of Sithe Energies. The disposal of Sithe was to have been effected with Vivendi’s Japanese partner. "We have been looking for eighteen months into whether there is a benefit in being supported by an electricy generator like Sithe when energy services are provided, as they are by our subsidiary Dalkia, on site. The outcome of this study in the field was that there were very few synergies between Sithe and Dalkia. We do not need to be an electricity producer to provide convenience on site services to local collective, industrial or individual customers. We are not hiding behind words. Electricity production is to be more and more a commodities and financial management business. This is not where Vivendi’s heart lies."

Is it all money, money money, then, when it comes to Vivendi? Not at all. And it is not to difficult to detect Messier’s fingerprints on the company’s impressive humanitarian programme. As part of the emergency aid programme for the refugees of Kosovo, for example, Vivendi’s teams united their technical and human skills to help disaster victims, their efforts winning widespread acclaim. Included in the French humanitarian aid programme, Vivendi worked in several camps in Albania - at Kukes, in the north of the country, where the Générale des Eaux assisted the UNHCR (United Nations High Commission for Refugees) with the installation of a drinking water production unit. A mobile treatment unit (15 cubic metres/day) capable of supplying 5,000 to 10,000 people a day was taken to the site, together with three canvas reservoirs with a capacity of 5,000 litres of water each. There was also a great need for electricity. Enter Dalkia- Vivendi’s European energy subsidiary, donating a generator set which was sent to Albania to be installed in the hospital at Tirana. And in the south of Albania, Messier’s Foundation providied water treatment and distribution for the Povel refugee camp in co-operation with the French forces and the Enfants du Monde association. The company also participated in installing equipment in the Kolonje and Korce refugee camps. Good PR, you might well thing – but there were certainly no complaints from the refugees.

Messier was also the driving force behind the company’s change of name. Certainly Vivendi flows a little more easily from the tongue than rather cumbersome Compagnie Générale des Eaux. The word Vivendi was selected from no less than 5500 considered – each one of which was thoroughly checked in semantic, legal and marketing terms. Clearly there was a risk of ending up with a compromise, a bland, mediocre name that wouldn't offend anyone - but that wouldn't excite anyone either. In the end precisely the opposite was achieved - the chosen name being committed, expressive and conveying most timeless value of companies and individuals alike - life.

Check out the company’s web site and you will see its slogan written over almost every page. "All over the world", it will tell you, "Vivendi contributes to improving the quality of life of its customers." Jean-Marie Messier strikes again. Why? Because this was precisely the reason why he abandoned politics for business.

"When I was voted in as Chairman and Chief Executive Officer of the Societé Générale des Eaux", he reveals, I was greatly honoured. I am only the 9^th Chairman of this great company. Which means that the average term of office of each Chairman has been 18 years. And at the Board meeting when I was elected the only reflection of my predecessor was that I should not reduce the average age. I was happy to make such a commitment. Which means that I will not be returning to the world of politics. This is what matters to me most - the real world - having a direct impact on the everyday lives of ordinary people by providing them with excellent service in whatever field that might happen to be."

Shareholders and refugees please note: Messier is but at the beginning of his term of office.