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Legal
US court cuts Vivendi damages for misled investors
By CMU Editorial | Published on Thursday 24 February 2011
A new US court ruling has limited the number of shareholders in Universal Music parent company Vivendi who can claim damages relating to misinformation provided by the company’s management between 2000 and 2002, in doing so reducing the amount of money the French-based conglom will have to pay out.
This all relates to that crazy period in the French firm’s history when then CEO Jean-Marie Messier went on a mega spending spree buying up all sorts of companies, including all the music, media and movie assets of Edgar Bronfman Jr’s Seagram business.
He had a grand plan to transform the one time water company into a global entertainment giant, but it all went horribly wrong and he almost drove the conglom out of business. In the end he was fired, and his successor Jean-Bernard Lévy rescued the firm by selling off many of its recent acquisitions, including all the Universal companies except the music business.
Messier was accused of misleading his investors about the state of the company as it went through that period of dramatic growth. He was found guilty of said charges by Parisian financial regulators, and subsequently given a three year suspended sentence and fined 150,000 euros by the French courts last year.
Meanwhile, some of the affected shareholders from that era, who saw the value of their stock slump as a result of Messier’s grand plan, sued both the former CEO and the company through the US courts. American judges cleared Messier of personal liability, but ruled against Vivendi itself and ordered it to pay damages to the claimants.
As a class action the ruling meant any affected shareholders could similarly make a claim, with lawyers representing the claimants reckoning the total damages could reach 6.6 billion euros, though Vivendi made a much more conservative estimate of what the total damages might be, setting aside 550 million euros to make the payments. They also appealed the ruling.
In the latest stage of this saga a US judge has not overruled the original court decision, but reduced the number of shareholders who can claim damages as a result of it, mainly based on jurisdiction arguments, ie what power does a US court have over a French company, especially when dealing with non-US investors. In the end US judge Richard Holwell said only holders of ‘depositary’ rather than ‘ordinary’ shares can claim, and then only those based in the US, UK, France and the Netherlands.
It’s not clear what impact the ruling will have on the amount of money Vivendi has to shell out over this, though current CEO Levy called the ruling “a substantial victory”, while one commentator told the Financial Times it could see the final damages bill being reduced by up to 80%.
As previously reported, the aforementioned Bronfman Jr, now the CEO of Warner Music, was also given a suspended sentence and fined five million euros over allegations that he, as Vice-Chair of Vivendi during its turbulent era, was guilty of insider trading for the way he handled his own portfolio of Vivendi shares while in receipt of insider information about the company’s affairs.
