Accounting doubts and junk rating hit Vivendi

Jean-Marie Messier's last day as chairman of Vivendi Universal saw the company's shares plunge by up to 40 per cent, its debt downgraded to junk status and its accounting practices called into question.

The self-styled "master of the world" was reduced to squabbling over the size of his pay-off and waiting for a board meeting due to start last night that was called to sack him.

"Let the fire sale begin! The departure of Jean-Marie Messier from Vivendi signals the beginning of the end for the disparate empire he created," screamed a research note from WestLB Panmure, the broker.

Mr Messier said in an interview published in France's Le Figaro yesterday that he hoped his departure would see the company he built survive intact. "I tried to do too much too quickly.... I'm leaving so that Vivendi Universal stays," he said.

That Vivendi would not now be forced into some form of break-up appeared a forlorn hope. The downfall of Mr Messier, a boyish-looking former civil servant, 45, marks the failure of his grand vision to build a media and entertainment empire through costly acquisitions.

His deals included a $30bn (£20bn) buyout of Canada's Seagram Universal film and music assets and a $10.3bn purchase of USA Networks, the cable and entertainment group run by the Hollywood mogul Barry Diller.

The banks, which are owed some €19bn (£12bn) by the company, had finally forced Mr Messier to quit, by withholding further funds. However, the divestments and rescheduling of debt that is now likely, failed to calm the nerves of investors yesterday.

The markets, instead of celebrating the downfall of Mr Messier, which investors had been clamouring for, pressed the panic button instead. Shares in the world's second-biggest media group slumped as much as 40.9 per cent to €15.40, shredding €10bn of market value in less than four hours, forcing trading in the stock to be suspended six times. The shares closed down 25 per cent.

Moody's, the credit rating agency, said that Vivendi could no longer command an investment grade rating. It said: "The rating action reflects growing doubts about the company's ability to achieve the level of debt reduction factored into the previous [Baa3] rating and to arrange refinancings of debt falling due over the next 12 months.

"Additional uncertainty is created by a challenging capital markets environment, the lack of clarity about the company's further strategic development and the possibility that the company might decide to review its overall strategic options in-depth."

S&P, the other main credit rating agency, warned that Vivendi needed to find €6bn in debt repayment by the end of this year and a further €3bn for the first half of 2003.

Sentiment was further drastically undermined by a report in the French newspaper Le Monde that said Vivendi sought, unsuccessfully, to embellish its 2001 accounts by €1.5bn. The French regulator stopped this attempt to apply US accounting rules, but investors, unnerved by the recent series of big corporate scandals, sold off the shares on worries that Vivendi's books could contain other horror stories. Its auditors were Andersen.

It is thought that Mr Messier is asking for a €12m pay-off, equivalent to two years' salary. He is also apparently seeking a deal over a €25m loan from Vivendi that he used to buy company stock – failure to resolve this liability could leave Mr Messier personally bankrupt.