Vivendi's Stock Drops After Liberty Media Verdict

LONDON - Vivendi shares slipped in European trading Tuesday after the entertainment and telecom conglomerate lost a stage in a court case to John Malone's Liberty Media.

our editor recommends

Vivendi Suffers $956 Million Jury Award to Liberty Media

Analyst Upgrades Vivendi After Stock Hits Nine-Year Low

Vivendi Stock Jumps Despite Denial of Break-Up Report

Analysts said most investors likely hadn't prepared for a legal payment that could be a drag on the company's stock market value.

The company, led by CEO Jean-Bernard Levy, was late on Monday ordered to pay $956 million in a legal showdown over Vivendi's 2001 acquisition of Liberty's stake in Barry Diller's USA Networks. The suit was filed in 2003 and argued that Vivendi, then led by Jean-Marie Messier, had misled Liberty and investors about its financial state, which inflated the price of its stock, which it used in the transaction.

In early Tuesday trading, Vivendi's stock was down 2 percent at 13.32 ($16.66). Over the past year, the stock has traded in a range of 12.01-18.61 ($15.02-$23.28).

"It has largely flown under the radar, so not many people were expecting it," Jefferies & Co. analyst Will Smith said about the court case and verdict. "The outcome of the court case was unexpected," echoed UBS analyst Polo Tang.

The court decision is the latest blow for Vivendi, which recently traded around nine-year lows. Vivendi's stock had gained a bit this month amid hopes that a management meeting this past weekend may lead to some sort of deal announcement amid rumors that the company could sell video game firm Activision Blizzard (link to our last story) or other assets. The company never commented on such suggestions and after the meeting reiterated that it had no immediate news to share.

Tang said that the legal damages that Vivendi was ordered to pay would equate to 60 euro cents (75 cents) per share, or 4.4 percent, of the company's value.

Smith said in his model, Vivendi's valuation would fall from €20 ($25) per share to €19.30 ($24.13), or a decline of 3.5 percent, in the worst case. 

"Vivendi has stated it will appeal, but it is not clear if it will be allowed to do so," Tang said. "Vivendi shares have bounced more than 10 percent from its recent lows on hopes the recent strategy meeting by the supervisory board would lead to a break-up of the company. However, with lack of news on the outcome and likely negative sentiment from the result of this court case, we think the shares are likely to continue to drift from here."

Email: Georg.Szalai@thr.com
Twitter: @georgszalai