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Vivendi to Sell Water Business, Sources Say

Media: Firm is expected to announce today that it is severing last ties with its historic core assets.


Vivendi Universal Chairman Jean-Rene Fourtou is expected to announce today that the company will sever its last ties to its historic core assets and move forward as the world's second-largest media company, sources said.

Sources said Fourtou will announce at a board meeting today in Paris that he plans to slowly sell off the firm's minority stake in Vivendi Environnement, the 145-year-old water-and-sewer business. Former Vivendi Universal Chairman Jean-Marie Messier was in the process of transforming the European utility into a media conglomerate when he was ousted this summer.

Fourtou also will signal plans to keep a minority stake in the French telecommunications company Cegetel, with an eye to buying control of that company sometime in the future. Separately, he will detail about $10 billion worth of non-core assets he plans to sell to resolve the company's cash crisis.

The announcement, coming after months of wide-ranging speculation about the future direction of Vivendi, reflects the company's reality. Since Vivendi bought Universal Studios and Universal Music Group in 2000, entertainment has dominated operations.

Fourtou's declaration also is a recognition that the depressed market for media properties precludes selling the assets for anything near what Vivendi paid for them two years ago. Although several buyers, including Viacom Inc., News Corp. and General Electric Co., have expressed interest, they have been looking to take advantage of a company in the throes of a cash crisis with more than $30 billion in debt, Wall Street sources said.

The effort to focus Vivendi on its media assets raises as many questions as it answers, said Michael Nathanson, a European media analyst with Sanford Bernstein & Co. "What are they going to do with what they are keeping?" he said, noting that Fourtou has yet to explain how Vivendi will regain the 80% of its market value lost in the last year.

Vivendi has yet to resolve its market dissonance. As a French company operating under French accounting rules, Vivendi will never realize a premium market valuation--even if it is a U.S. media powerhouse, according to Nathanson.

Vivendi needs to take the next step and spin off a portion of the entertainment company in an American public offering if officials hope to get that proper market valuation, he said. "It's just a question of when. And whether they add someone else's assets in with it as well."

Separately, moving forward in its efforts to trim its $19 billion in media-related debt, Vivendi has received three bids for Vivendi Universal Publishing, some as high as $3.4 billion--but still less than the $4 billion Vivendi had hoped to see.

"It's still good news," Bernstein's Nathanson said.

The company bought Boston-based Houghton Mifflin Co., publishers of American Heritage Dictionary and the "Curious George" series, last year for $2.2 billion. Vivendi's publishing unit also includes French educational publishers Nathan and Bordas, dictionary publishers Larousse and Le Robert, and fiction publishers Robert-Laffont and Plon-Perrin.

Analysts have valued the unit as high as $5 billion.

Kohlberg Kravis Roberts & Co., Carlyle Group Inc. and Steven Rattner's Quadrangle Group are among the bidders.

The French buyout firm Eurazeo is leading a group that includes Carlyle and Credit Agricole. KKR's Group is led by BNP Paribas and includes Apax Partners, Bain Capital, Blackstone Group, Thomas H. Lee Partners and Goldman Sachs. Lagardere, France's second-largest media company, and Quadrangle made the third offer.

None of the parties involved in the bids would comment.

Bloomberg News was used in compiling this report.

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