Analysts Cheer Vivendi Split Plan, See Stock Upside

One observer sees a possible boost of 50 percent for the market value of the separated media and telecom businesses.

Analysts on Thursday said a likely split of French conglomerate Vivendi should benefit the stock of the planned post-separation media company.

"Voila! We see 50 percent-plus value creation," Liberum Capital analyst Ian Whittaker wrote in a report.

Vivendi had announced late Wednesday that it was studying a plan to split into two: French telecom business SFR and its other assets, led by Universal Music Group and Canal Plus.

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"We see this as a very positive move," Whittaker said. "We estimate that the re-rating it will drive in the separate assets would mean a pro-forma valuation of €26 ($35), or more than 50 percent to yesterday’s closing share price."

He touted the outlook for the possible media-centric part of Vivendi. "With about €2.8 billion of adjusted [operating cash flow] and no debt, [it] should be in a favorable position to return a high dividend yield, it has high-quality assets, and [Brazil broadband operator] GVT and music should drive growth," Whittaker said.

Vivendi said Wednesday night that it was studying a split, but Whittaker predicted it would go through. "Despite the cautious tone of the statement, we expect this plan to be fully followed through with final approval at the 2014 annual general meeting and a completion date by end of the first half of 2014," he said.

Overall, Whittaker reiterated his "buy" rating on Vivendi's stock and a price target of €23 ($30.60).

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Sanford C. Bernstein analyst Claudio Aspesi was more mixed in his analysis of the possible split, predicting stock upside but questioning synergies between the remaining porfolio.

"It is the right step, but we continue to see no evidence of tangible synergies across the remaining assets," he wrote.

His valuation model sees "substantial upside" for the stock after a separation, "but the split underscores difficulty of selling off the assets" Vivendi currently own, Aspesi said.

He concluded: "Focus now will move to the size of the (hoped for) cash return to investors and on how much debt is left within Vivendi. Longer term, we hope Vivendi has learned its lessons and will avoid pursuing acquisitions without tangible synergies."

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai

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