Jean-Marie Messier, chief executive of Vivendi Universal, was forced to duck beneath the parapet Wednesday following his provocative claim that a massive €15.7 billion ($13.76bn; £9.68bn ) acquisitions write-off did not represent “value destruction” as it had been paid for in shares [WAMN: 06-Mar-02].

Claimed Messier yesterday: “Sometimes there is a confusion between write-offs and the creation and destruction of value. Given that the acquisitions were virtually [all] paid in shares, not cash, this non-cash charge does not represent any value destruction.”

‘Oh, yes it does!’, responded a massed chorale of irate investors and analysts. Said one, Bank of America media analyst Grace Fan: “That's completely wrong, of course. We’re a long way from seeing Vivendi Universal earn its cost of capital. I expect them to earn a return on capital of around 3.5% this year, rising to only 7.5% by 2005.”

Other entrail-rakers argued that even overvalued shares had a key opportunity cost to existing shareholders, given that a company could choose to exploit any valuation bubble by issuing equity for cash rather than by buying other overvalued assets, which would fall in value.

Vivendi finance director Guillaume Hannezo sprang to his boss’s defence: “Depending on where you are in the cycle, the real cost of issuing shares is extremely different: issuing shares at the middle of the internet bubble (when we were mostly an internet and internet-driven company seeking to go to a more secure business mix with more cash flow) was the right thing to do," he argued.

“Looking back, because of the bubble we had a very low weighted average cost of capital on the equity side. For the same reason today we have a very high cost of capital on the equity side, which explains why we would never envisage a significant acquisition.”

[WAMN’s report yesterday put it rather less technically: "Messier was in full Humpty-Dumpty mode", we wrote, recalling the ovoid's famed observation in Alice Through the Looking-Glass: “When I use a word,” Humpty Dumpty said in a rather scornful tone, “it means just what I choose it to mean – neither more nor less.”]

Data sourced from: Financial Times; additional content by WARC staff