Sale of Vivendi shares may pinch Deutsche Bank and Goldman

Timid investors leave underwriters holding bag

January 09, 2002|By NEW YORK TIMES NEWS SERVICE

LONDON - A planned $3 billion sale of existing shares in Vivendi Universal turned somewhat messy and potentially costly for the company's underwriters yesterday.

Even after lowering the price to 59.20 euros a share, Deutsche Bank and Goldman Sachs were unable to sell all of the 55 million shares on offer. As a result, both banks wound up with large chunks of Vivendi stock on their books. And because the banks had promised they would sell all of the shares at between 60 euros and 61 euros each, they must pay Vivendi the difference, although any losses would be partially offset by underwriting fees.

"Deutsche Bank and Goldman Sachs have taken investment positions in the stock," said Nigel Szembel, a spokesman for Deutsche Bank, although he declined to comment on the number of shares each bank was left holding.

Simon Eaton, a spokesman for Goldman, Sachs, also declined to comment beyond confirming that the bank held some of the stock.

Several forces combined to produce the unexpected outcome, analysts said.

A statement Monday by AOL Time Warner - which said earnings before interest, taxes, depreciation and amortization may grow more slowly this year than analysts had expected - helped place a damper on media stocks in general, said Neil Blackley, an analyst with Merrill Lynch.

Blackley added that investors may have been disappointed that the offering included some 33 million treasury shares - or shares held by the company - that Vivendi had previously planned to eliminate, effectively canceling a move that would have increased earnings.

Some analysts said the underwriters should have offered the shares at a greater discount to the prevailing share price as an incentive for investors. The shares were initially priced at as much as a 4 percent discount to their Friday closing price of 62.50 euros. But once the deal was announced on Monday, the shares swiftly fell. They closed down 0.68 percent yesterday in Paris trading. Vivendi's American depository receipts fell 50 cents, to $52.40, on the New York Stock Exchange.

"People are not paying a premium at the moment," said Oliver Kirby-Johnson, a partner with KPMG Consulting. "The only way to get an offering done is by pricing it right."

Kirby-Johnson said the scarcity of deals might be causing investment banks to promise clients too much as a way of winning business.

Vivendi will use the $3 billion raised to reduce debt amassed through several acquisitions as its chairman, Jean-Marie Messier, continues to reshape the 148- year-old water utility into a media company.

Last month, Vivendi announced a $10.3 billion deal for the movie, television and theme park businesses of USA Networks.

Moody's Investors Service revised its outlook on Vivendi's long-term debt last month to negative from stable. Vivendi's current debt rating of Baa is two notches above junk.

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