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EU: Big Business in Europe -- Global Outlook Limited For Vivendi, Volkswagen

  • Breffni O'Rourke

The troubles of the French business empire Vivendi, and the struggle to subject German companies like Volkswagen to common European Union takeover rules, are very different stories. But they both illustrate how EU member states sometimes remain preoccupied with pursuing national interests in an age of globalization and open markets.

Prague, 10 July 2002 (RFE/RL) -- Jean-Marie Messier, the high-powered businessman who was just toppled as chairman of the Vivendi Universal group, was undeniably a strategist on a grand scale.

The Frenchman managed in a few short years to build a water-utility company into the world's second-biggest media-and-entertainment conglomerate, after AOL Time Warner. The achievement, in business terms, was astounding.

His plans for expansion into high-tech innovations were bold -- probably too bold. Moreover, they were undermined by the collapse of the dot-com (Internet business) boom. Debts built up around the group, and last week Messier was forced to resign.

What will happen to Vivendi Universal is not yet clear. Messier, in departing, pleaded for the conglomerate to be kept together, not separated into saleable components, but that may be hard to achieve.

Vivendi's biggest acquisition came two years ago, when for some $34 billion it bought the Canadian-based Seagram empire and, along with it, the famous U.S. Universal film studios and music business. All in all, Messier was an admirer of the American style of business, and he was widely feted by top business circles in New York.

This trans-Atlantic approach caused some ripples of concern in France. Paris-based analyst Jacques Rupnik of the Centre for the Study of International Affairs (CERI) recalled: "He was, in fact, quoted earlier this year [speaking] in New York, where he lived -- he was based in New York, lived in New York, chose to live there. And this is where he said that the French cultural exception, by which the French mean the need to protect cultural goods, not to treat them simply as commodities on the market, that this [exception] is finished, and that he was going to be more American, more free-marketeer than everybody else."

Now that the group faces breakup, the French government has made clear that it does not want French assets, particularly relating to culture, to fall into foreign hands.

Minister of Culture Jean-Jacques Aillagon said last week that he had written to Vivendi's new management team expressing concern about the fate of constituent companies that he described as "an essential part of the French cultural heritage."

He was referring especially to the Canal Plus pay-television service, which helps finance much of France's television and big-screen film production.

But Vivendi's new managers, a high-powered team of top French businessmen, may assure that the company's escapade in internationalism is, for the time being, finished.

In Germany, meanwhile, a different sort of battle is looming as Berlin appears determined to protect one of the country's most prized companies, carmaker Volkswagen, from even the remotest threat of takeover by foreign interests.

At issue in the dispute between Germany and the European Commission in Brussels is the controversial "VW law." That law restricts the voting rights of individual shareholders to a maximum 20 percent, even if the actual number of shares the member holds is more than that. In practice, this gives the German state of Lower Saxony, the biggest shareholder, almost unassailable influence over the auto giant.

This long-standing arrangement has led the European Commission to examine the feasibility of a prosecution against the German federal authorities on the grounds that the VW law infringes EU rules on the free movement of capital. It also puts the state in a favored position vis-a-vis private enterprise.

However, at a meeting with Volkswagen staff and workers in Wolfsburg last month, Chancellor Gerhard Schroeder pledged to fight any move to change the arrangement. While he remains chancellor, he said, there will be no change in the VW law.

Frankfurt-based Deutsche Bank analyst Lars Ziehn said Schroeder took such a strong line because he has an eye on the coming September parliamentary elections. "Say, for instance, that the Volkswagen law did not exist. Then, theoretically, someone could come in and buy Volkswagen relatively easily -- the valuation is really low -- and then, in all probability, there would be many job cuts. And, of course, Schroeder is a politician who cares about getting votes and preserving jobs -- that's why he takes the line he does," Ziehn said.

In Brussels, the EU commissioner for the internal market, Fritz Bolkenstein, sees things differently. He is making a second attempt to introduce common EU-wide guidelines for the corporate takeover of companies quoted on the stock exchange. The guidelines would slash the restrictions against hostile takeovers.

Bolkenstein's first attempt on this subject failed dramatically last year when, after 12 years in preparation, the draft directive lost a key vote in the European Parliament. In that case too, German opposition was the essential factor.

Ziehn said it's unlikely there will be an early solution to questions like the VW law. "It will take years to do away with [the Volkswagen law]. Until the EU files charges, and the case is decided, it will take time -- the VW law will have still a few more years to run," Ziehn said.

Germany early this year unveiled a voluntary code dealing generally with corporate takeovers, but that does little to dismantle the obstacles to takeovers of German companies.