Vivendi-2 - BUSI698 Vivendi Universal Vivendi Universal...

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Unformatted text preview: BUSI698 Vivendi Universal Vivendi Universal Horizontal Diversification Two views on Diversification Two views on Diversification Industry Attractiveness: the BCG Growth­Share Matrix suggests that firms should choose business areas that allow them to maximize long run growth potential Synergies: the Resource­Based View of the Firm (RBV) suggests that firms should diversify to the extent to which they can leverage their capabilities across multiple areas of business/product lines Vivendi in 2001 Vivendi in 2001 Chairman and CEO: JM Messier USA Networks Music TV & Film Universal Studios Group Canal+ Group Publishing Telecoms Internet Vivendi Universal Publishing Cegetel Vivendi Universal Net VTI Vizzavi MP3 Environ­ mental Services Vivendi Environnem ent Annual market growth % High Low Vivendi & BCG Matrix Vivendi & BCG Matrix High Relative Market Share Low Plot Vivendi’s businesses according to the BCG framework Do Vivendi’s choices make sense according to the BCG framework? Why/Why not? Vivendi’s diversification logic Vivendi’s diversification logic (1) Vivendi Business: (2) Your Names: Annual market H ig h Low growth % High Relative Market Share Low BCG Growth­Share Matrix: Which quadrant does your business fit in the Vivendi BCG Matrix? – What is the rate of market growth? – What is Vivendi’s relative market share? – Are they the market leader? – What is Vivendi’s revenue growth? Resource­based view: What resources are required to compete successfully in this business? Does Vivendi possess those resources? Are there any synergies with Vivendi’s other businesses? Vivendi Portfolio Vivendi Portfolio Market Share WATER & WASTE MANAGEMENT (VIVENDI ENVIRONMENT) FILM (UNIVERSAL STUDIOS) MUSIC (UNIVERSAL MUSIC) TELECOM (CEGETEL) INTERNET (VIZZAVI) Market Size 10% $28 billion $40 billion 3% 13% $25 billion 4.50% -1% $31 billion 2.40% $7.6 billion 45% $32 billion 2% 129 million 169% Market Leader? 43% 14.50% Vivendi's Revenue* Yes $26.5 b. ($12b water) Yes (28%) $4.9 billion 30% Yes TV (CANAL PLUS) PUBLISHING (HOUGHTON MIFFLIN) Vivendi Rev. growth $4.56 billion Market Growth 19% 17% No 21% Yes 34% France Telecom (66%) $4.2 billion $6.6 billion Annual market growth % High Low Vivendi & BCG Matrix Games Television? Internet Film Telecom Music Publishing Environment High Relative Market Share Low Resource­based view and Vivendi Resource­based view and Vivendi RBV: Does Vivendi have a sustainable corporate advantage in this business? – Synergies? (Will the combination decrease costs or increase WTP in each business?) – Is it necessary to have these businesses under the same corporate umbrella? What resources does Vivendi bring to each business? Are Vivendi’s resources enough to add more value compared to more focused competitors? External vs. Internal Capital Markets External vs. Internal Capital Markets How should funding decisions be made in Vivendi’s internal capital market? Is Messier’s discipline & oversight equivalent to that of the external market? Could it be better/worse? Vivendi Updates Vivendi Updates 2002: – Vivendi posts largest one­ year loss in French corporate history ($25 billion) , stocks fall 60% – Messier “resigns” 2002­2003: Sellout – Environment, Publishing, Vizzavi, NBC universal (80%), 2004: Messier indicted for accounting fraud, settles with SEC for $51m Vivendi 2006 Vivendi 2006 Free Cash Flow & Cross­ Free Cash Flow & Cross­ subsidization Free cash flow = cash in excess of that required to fund all current projects with positive net present value. Michael Jensen on Agency & Free Cash Flow: argues that free cash flow is often utilized for projects that increase managers’ power and corporate scope without providing an adequate return for shareholders. Investors should receive this cash to invest it themselves. An increase in the size of the firm, which may be in the managers’ interest, will not necessarily lead to increased returns to the shareholders. Internal vs. external markets Internal vs. external markets Efficient external markets are better than internal markets at allocating capital to best opportunities Unrelated diversification is not a good idea if the only logic is cross­subsidization and diversification of risk. Investors can do it themselves. Internal capital allocation may be better than external markets when: – external markets are not efficient e.g. in developing countries with thin capital markets, there may be undervalued opportunities. – Parenting advantage at the corporate level: When executives have superior knowledge compared to investors in the external market (typically happens in related diversification) – The combination of businesses creates new value (related diversification) ...
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This document was uploaded on 11/04/2011 for the course BUSI 471 at UNC.

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