Vivendi Gets Bids for Telecom Arm as Analysts Debate Outlook

1:54 AM PST 03/06/2014 by Georg Szalai
Vivendi CEO Jean-Francois Dubos

A sale would fit into the French conglomerate's decision to focus on its entertainment assets, including Universal Music, and raise additional cash for possible acquisitions and shareholder returns.

Vivendi, which last year said it would focus on its media and entertainment assets and spin off its French telecom business, has received two offers for a majority stake in its telecom arm.

 

A sale could raise billions of additional dollars that the French conglomerate could put towards acquisitions in the media space or shareholder returns, according to analysts.

 

Vivendi said the two offers for a controlling stake in SFR came from Altice, the parent company of French cable operator Numericable, and telecom giant Bouygues group. "They include financing commitments," the company said. "Vivendi’s supervisory board will now examine these offers."

 

Financial details weren't disclosed, but Vivendi said it would "consider all options available regarding the future of its subsidiary and the group, in the best interests of employees and shareholders."

 

Bouygues on Thursday morning said that its bid includes $14.4 billion (€10.5 billion) in cash, while French media reports cited a $15.1 billion (€11 billion) cash portion in the other bid.

 

"There is significant potential scope for cash returns if Vivendi does sell SFR," said Liberum Capital analyst Ian Whittaker. "Vivendi could return $10.3 billion (€7.5 billion), or over 25 percent of its market capitalization, in cash, with additional potential cash to come from the sell-down of its stake in the combined [telecom] entity."

 

Acquisitions are also a possibility, but management, led by CEO Jean-Francois Dubos, hasn't outlined its vision for its media-focused in much detail.

 

A telecom unit deal would see Vivendi focus on Universal Music Group, French pay TV giant Canal Plus and a Brazilian broadband firm. 

 

"We recognize there are doubts over the remaining media assets, although we think these assets are of higher quality and should offer faster earnings growth post-2014 than the consensus expects," Whittaker said. Asked whether he expects Vivendi to make media acquisitions, he said: "With that firepower they could. However, given this group has got itself into troubles with big acquisitions, any deals are likely to be more smaller."

 

Sanford C. Bernstein analyst Claudio Aspesi recently also published a bullish report that focused on the upside at Universal Music Group amid the growth in streaming services.

 

"Most investors remain skeptical on the outlook for music, but streaming may change that and lead to a faster growth trajectory at UMG," he wrote.

 

He concluded that streaming music revenue could boost operating cash flow at UMG enough that it would raise his Vivendi target valuation by 5 percent-7 percent.

 

The outlook of the media assets has been in focus since Vivendi's decision to concentrate on them.

 

Early in the year, it hired former Hearst Magazines International executive vp Arnaud de Puyfontaine as senior executive vp of media and content activities. During a recent earnings conference call, he said that after a few weeks in the job, he was "extremely enthusiastic about Vivendi's media operations."

 

Hinting at his early plans, he said "I want to focus on growth by leveraging Vivendi's existing strength, accelerating the underlying performance" of the media operations and implementing a new digital strategy that takes advantage of growth opportunities.

 

But UBS analyst Polo Tang this week lamented Vivendi's lack of financial guidance for 2014. "The outlook for 2014 sounded downbeat" on a recent earnings call, he said. 

 

E-mail: Georg.Szalai@THR.com

Twitter: @georgszalai

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