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Case: Vivendi

Case: Vivendi Free Essay

This is a fact that before Jean-Marie Messier became the CEO of the company in 1994, Compagnie Generale des Eaux (CGE) had a diversified portfolio. CGE had started as a water utility company providing both water for irrigation and drinking water in the cities of France. Later on, it adopted a diversification policy and diversified its portfolio into other business ventures. It first added heating and waste disposal services. In the 1970s, it expanded into real estate promotion, construction, and energy business. In the 1980s, the company made substantial acquisitions in heating and air conditioning services in a joint venture with General de Chauffe, and in water management – in a joint venture with Omnium de Treatment et de Valorisation. Moreover, made acquisitions in transport and waste management in a joint venture with Compagnie Generale d'Enterprise Automobiles, and, finally, in a paid television channel – with JV Agency Havas to form Canal Plus with a stake of 15%. CSE also diversified further by acquiring good stakes in telecom and media businesses. In telecoms, it set up a Societe Francaise Radiotelephone (SFR).

Messier was very ambitious when he came to be the chief executive officer (CEO) of CSE, and his business strategy was to transform the company into a global corporation and to make it the leading global media company (Rakesh, Beyersdorfer, & Dessain,,2004). He demonstrated his global strategy when he took the operations of CSE outside France to the United States, Australia and the Latin America where he started by extending CSE water utility business. To advance his strategy of making CSE a global media force, he acquired Seagram, a company that was leading in alcoholic beverages, and which owned the Universal Entertainment whose portfolio included businesses such as movie making and distribution, TV stations, theme parks and books. This kind of strategy was triggered by the desire to control many multi-media and Internet companies which was critical to achieving his vision of making the company a global media force.

Acquisition Strategy entails finding an appropriate methodology for acquisition target companies which produce worth to acquire. After becoming the CEO, Messier started the process of acquiring new companies. Since his vision was not limited to France only, the United States of America became his key target, and specifically, the Hollywood. He established this transformation agenda would be through larger acquisitions financed by debt and Vivendi stock. By using debt and stock as his primary enabling tools for acquisitions, he made several acquisitions in several companies in the United States and Europe such as Pay TV in Europe with the NetHold acquired. In the United States, he acquired education and entertainment software all through the debt instrument.

Jean-Rene Fourtou, the next CEO of Vivendi Universal (VU) after Jean-Marie Messier, stated that VU under Messier was just a conglomerate of 6000 disparate companies (as cited in Gibson, 2003, n. pag.). I agree with his view of VU by then, first, because coming from a pharmaceutical company that had participated in mergers, he understood the dynamics of acquisitions from his previous job. It was true, as Fourtou put it that VU was an extremely disorganized and fragmented conglomerate with fragile internal synergies. My agreement with his thinking is based on the principle that expansion does not always translate to better performance. Messier’s strategy of acquiring many companies was overlooking the internal factors that are key for the growth of a company. Although diversification entails diversifying the risks, it should not be at the expense of domestic business fundamentals. Creating a more cohesive business is critical before new acquisitions are made. The fact that Messier was even making acquisitions in companies experiencing loss, shows these were not wise business moves. The exponential fall in prices of the VU share and the experienced supernormal losses were a red light to a reversal of the previous Messier's strategy. Although it was an ambitious move to exert its influence in the global corporate world, one can say that Messier failed to be diligent and meticulous in implementing his strategy.

Diversification itself comes at a cost. It is very clear that from Messier's acquisition strategy, debt was the key instrument that was to turn ahead the diversification agenda. Debt is borrowed money with a commitment to pay back within some agreed terms. The fact that VU diversified even to loss-making entities means that it was a cost to bear in order to cover the liabilities associated with those companies. Reduction in the value of VU stock by almost a quarter was an incredibly huge loss to VU. First, it meant that VU struggled to pay off the massive debt that came as a result of the acquisitions. Lose of an investor confidence was another cost that VU was to bear. Another cost that was to be incurred was the loss of its assets value that was acquired at a high cost during the acquisition process (Johnson, 2002).

This is a true thing that a business can have a good strategy, but poor execution. Implementation of strategy determines the level of success business archives. A proper execution requires due diligence and meticulous planning before implementation is carried out. A good strategy in place and an excellent execution plan guarantee the best results and great success. Those two work side by side and are directly related to each other. It is undeniable that Messier committed grave mistakes in the implementation of his acquisitions. The truth is although he had a good strategy, he overlooked the internal synergies of those particular businesses that he acquired. This is manifested from the massive losses reported by the individual companies (Dutta & Moganty, 2006). Managing all those acquisitions may have been a challenge to Messier hence creating loopholes for malpractices.


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