Vivendi Content Strategy, Asset Sales Decisions to Come Into Focus in 2013

 

French media and telecom conglomerate Vivendi has long been a player in a range of sectors thanks to its ownership of such diverse businesses as Universal Music Group, pay TV firm Canal Plus, video game firm Activision Blizzard and telecom firms in France, Morocco and Brazil.

This has allowed it to diversify its revenue streams, but has also left investors wondering where its allegiances lie and caused its stock market value to be dragged down by a conglomerate discount.

But following a nine-year low for the company's stock in 2012 after Vivendi said it would report lower profits amid challenges in its telecom business until a return to earnings growth in 2014, momentum for a strategic review grew stronger. And when Jean-Bernard Levy abruptly left his job as CEO of Vivendi at the end of June, it also meant the departure of a leader who had long favored a conglomerate structure.

Observers expect Vivendi to develop and articulate its vision more clearly over the course of 2013. Management is likely to officially reiterate its commitment to growing its media and content businesses, while looking to divest its telecom assets over time, according to analysts. Investors are bracing for an update on if and when the company will sell off such telecom businesses as SFR in France and Brazilian broadband provider GVT.

Management board chairman Jean-Francois Dubos, who has calmed the seas at Vivendi following Levy's departure, recently told French business newspaper Les Echos that it was "not our intention at the moment" to sell any of the conglomerate's media businesses.

But he emphasized that "we want to define a new strategy for Vivendi and give it new momentum." Some observers have suggested that this could include new investments in content businesses.

Analysts have long emphasized that Activision Blizzard, in which Vivendi owns a 60 percent stake, is very profitable, making a previously rumored auction less likely.

Meanwhile, UMG last year completed the acquisition of EMI's recorded music business, boosting its global market share to above 30 percent and strengthening its global reach.

And about its pay TV arm, Dubos told Les Echos: "Even if Canal Plus is feeling the competition from the Internet in the current depressed economic environment, it is still growing...We may give the company more resources to become a global player."

That has left analysts to expect at least one big telecom asset sale in 2013, whether a deal for SFR, Maroc Telecom or GVT. But latest chatter in the first days of the new year have cast some doubt on whether and when Vivendi, which has always emphasized it will avoid fire-sale prices, will agree to a first sale. France's anti-trust authority has privately said that Vivendi won't be allowed to merge SFR with Iliad, according to a radio report this week.

Many see Vivendi's stock exposed in case no sale materializes. "Investor focus for Vivendi has been on disposals, but Vivendi has already failed to sell its stake in Activision, and it looks as if nothing may happen with SFR," UBS analyst Polo Tang said Thursday. "Should the disposal process for Maroc/GVT disappoint, then investor attention is likely to switch back to weakening profitability." Tang has a "sell" rating on Vivendi.

But in line with Vivendi's still-developing vision of its future, analysts diverge widely on their ratings and outlook for Vivendi.

Jefferies analyst Will Smith is more bullish than Tang. Late last year, he raised his financial estimates for Vivendi after "robust" third-quarter results and increased management guidance. He argued that "an improving cash position should help alleviate any pressure from [debt] ratings agencies." This will also help buy Vivendi "time to find appropriate buyers for disposals," he added.

Sanford C. Bernstein analyst Claudio Aspesi, meanwhile, has a "market perform" rating, the equivalent of a "neutral," on Vivendi's stock.

"A full break-up valuation of Vivendi implies...25 percent [stock] upside," he wrote in a report late last year. "The divestiture of the telecom assets only, a more realistic scenario, yields...13 percent upside."

He expects GVT to be sold first, followed by SFR and Maroc Telecom over the next two to three years.

"The implementation of any disposal in telecoms is likely to be tricky because of their challenging market conditions," Aspesi said, echoing the views of other industry observers. "The stock could well spike up with the first deal, but Vivendi will need time to complete the telecom divestiture process. We expect that management will struggle to keep the share price from declining again until it divests SFR."

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

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