Vivendi Wins Narrowing of $9 Billion U.S. Investor Lawsuit

By Jonathan Stempel | February 23, 2011

Vivendi SA won a big court victory when a federal judge slashed potential damages in a $9.3 billion lawsuit accusing the French media company of misleading shareholders about its finances in connection with a giant merger a decade ago.

U.S. District Judge Richard Holwell threw out claims by purchasers of Vivendi’s ordinary shares, citing a June decision by the U.S. Supreme Court that limited the ability of investors to use federal courts to raise fraud claims over the purchase of foreign securities.

Holwell’s Feb. 17 ruling, which was made public Tuesday, could reduce Vivendi’s liability by billions of dollars.

The case arose from Vivendi’s $46 billion, three-way merger in 2000 with Seagram Co. and Canal Plus, which helped transform the water utility into Europe’s largest telecommunications and entertainment company.

Lawyers for the investors had estimated their clients could be entitled to as much as $9.3 billion .

But Vivendi said Holwell’s ruling eliminates more than 80 percent of potential damages, following a Jan. 2010 jury verdict in the case. It said it plans a “significant reduction” in its 550 million euro ($752 million) legal reserve for the case as a result of the ruling.

“We are very satisfied with today’s decision,” Chief Executive Jean-Bernard Levy said in a statement. “It is a substantial victory.”

Lawyers for the investors did not return calls seeking comment.

Holwell’s ruling means the class-action litigation now includes only investors in the United States, England, France and the Netherlands who acquired Vivendi’s American depositary shares between Oct. 30, 2000, and Aug. 14, 2002. The shares fell nearly 90 percent in that time.

Vivendi shares closed Tuesday in Paris at 20.24 euros.

MORRISON APPLIES

The ruling is the latest in a string of cases limiting investor lawsuits since the Supreme Court’s unanimous June decision in Morrison v. National Australia Bank Ltd.

In that case, the court said investors could not invoke a widely used federal securities law when they buy and sell shares of foreign companies on non-U.S. exchanges.

The decision has since led to dismissals of lawsuits against several other companies such as Swiss bank Credit Suisse Group AG , German automaker Porsche SE and the French bank Societe Generale.

In his 122-page ruling, Holwell said the Supreme Court in Morrison “clearly sought to bar claims based on purchases and sales of foreign securities on foreign exchanges,” regardless of whether the purchasers were foreign or American.

Holwell declined to enter a final judgment in the Vivendi case, meaning the ruling cannot immediately be appealed, so that Vivendi may raise some additional defenses.

Vivendi has estimated that U.S. investors held one-fourth of its shares in the period covered by the lawsuit.

JURY VERDICT

In January 2010, after a nearly four-month trial, a Manhattan federal jury found that Vivendi had made 57 statements from October 2000 to August 2002 that were too rosy or hid liquidity problems.

The jury also found former Chief Executive Jean-Marie Messier and former Chief Financial Officer Guillaume Hannezo not liable for the period covered by the lawsuit.

Messier had testified he did not hide liquidity problems, overstate earnings or seek to enrich himself at Vivendi’s expense, even if some of his management decisions went sour.

Vivendi forced out Messier in 2002. His successor Jean-Rene Fourtou later sold billions of dollars of assets, including much of its stake in its Universal properties to General Electric Co, to reduce the company’s debt burden.

The case is In re Vivendi Universal SA Securities Litigation, U.S. District Court, Southern District of New York, No. 02-05571.

(Reporting by Jonathan Stempel in New York; editing by Tim Dobbyn, Andre Grenon, Matthew Lewis and Carol Bishopric)

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