PARIS - Vivendi Universal SA's $937 million unfunded pension and post-retirement liability could complicate the company's attempt to avoid bankruptcy by divesting key businesses.
That figure is as of Dec. 31, and actuaries say the liability has worsened considerably since then.
Analysts covering Vivendi said the deficit could deter potential buyers of key American assets that could be up for sale in the near future, including Universal Music, Universal Studios and Vivendi Universal Publishing.
The largest share of the underfunding is believed to have come from the $868 million defined benefit plan of Joseph E. Seagram & Sons, purchased in 2000. Vivendi Universal's water and waste treatment subsidiary, Vivendi Environment, also is believed to have contributed to the deficit. Vivendi Environment, the world's biggest provider of water treatment services, owns U.S. Filter Operating Services Inc. and Onyx Environmental Services, both in Illinois.
Overall, Vivendi has about $2 billion in pension assets, most in the United States.
"We do see transactions where the higher the pension liabilities, the lower the price, and these liabilities will be a concern to potential buyers of the various businesses," said Emmanuel Dubois-Pelerin, who heads Standard & Poor's Investor Services' credit analysis team in Paris.
More than two-thirds of the liability is due to underfunded pension plans; the remainder represents post-retirement liabilities, such as retiree medical benefits.
Vivendi's new chairman, Jean-Rene Fourtou, is attempting to salvage the company by embarking on an asset sales program aimed at leveling the company's crippling $19 billion mountain of debt.
The company's lenders had threatened to place the group into receivership earlier this year, though they granted a stay of execution following the resignation of Vivendi's flamboyant former chief executive, Jean-Marie Messier, in June.
A London-based analyst, who did not want to be named, described the unfunded pension liability as a "material" factor as potential bidders scrutinize Vivendi's assets.
"It will make a big difference in terms of investors' sentiment and the company's ability to raise cash on sales," the analyst said. The result could be a lower price or even a complete lack of buyer interest.
Alain Delrieu, a Vivendi spokesman in Paris, declined to comment on which businesses Vivendi would sell.
Also, Andrew Loyst, Vivendi's New York-based head of global benefits, has refused to reveal Vivendi's contribution rates to the benefit plans over the past two years, or whether these contributions were in line with advice provided by the independent actuary, Robyn Slaughterwitz, at Buck Consultants, New York.
According to financial records filed with the Commission des Bourse (the French securities commission) and the U.S. Securities and Exchange Commission, Vivendi contributed e25.9 million ($25.5 million) to the defined benefit plans during 2000, and e44 million throughout last year. Documents show the Seagram plan used an 8% interest rate assumption.
Documents also show the unfunded liability worsened between year-end 2000 and year-end 2001 because of a $265 million investment loss and adverse foreign currency fluctuations that increased benefit payments.