Vivendi Suspends Auction of Brazil Broadband Firm Amid Low Bids

7:05 AM PST 03/15/2013 by Georg Szalai

The stock drops after the conglomerate says offers from DirecTV and another group for GVT weren't satisfactory, possibly delaying Vivendi's transformation.

LONDON - French entertainment and telecom conglomerate Vivendi has decided to stop the auction of its Brazilian broadband provider GVT after DirecTV and another group failed to make satisfactory offers.

The stock fell in Friday trading as analysts said the decision could slow down a hoped-for transformation of the conglomerate. As of 1 p.m. London time, it was down 3.9 percent at $20.95 (€16). The stock is up 27 percent over the past year.

The suspension of the GVT auction "is likely to be negative for investor sentiment and put more pressure on Vivendi to come to a deal on [its stake in] Maroc [Telecom]," said UBS analyst Polo Tang.

"Hopes of a radical shake-up of the group appear to be fading, and Vivendi is seeking to present a disposal to shareholders ahead of its annual meeting on April 30," he explained. "Should Vivendi also fail to sell Maroc, then investor focus will shift to weakening earnings momentum and limited credit rating headroom."

STORY: Vivendi Stock Drops Amid Lack of Asset Sales News

Vivendi management, led by chairman Jean-Rene Fourtou and CEO Jean-Francois Dubos, has said it plans to sell some assets, but only for prices that make sense. The company has signaled it wants to focus on its content businesses, such as Universal Music Group, pay TV arm Canal Plus and video game maker Activision Blizzard.

That has focused attention on foreign telecom businesses that Vivendi has looked at divesting.

"Vivendi is suspending the sale of GVT as preliminary offers do not reflect the real value of that company," a Vivendi spokesman said Friday about the auction of the fast-growing company in Brazil. "We are absolutely convinced that we have a great asset and are happy to continue developing it within the Vivendi family."

Vivendi was believed to be looking for a $9.2 billion-$10.4 billion (€7 billion-€8 billion) price tag for GVT. DirecTV was understood to have offered $7.9 billion (€6 billion) in a mixture of cash and stock. The only other known bidder, a consortium of private equity firms led by KKR, was reported to be offering $6.5 billion (€5 billion).

Sources said though that Vivendi will continue to look at strategic options for GVT. Analysts said those could include an IPO, possible alliances and a sale if an attractive offer comes in after all.

"Vivendi is likely to hang onto GVT for the medium term rather than undertaking an IPO," argued Tang.

The auction for Vivendi's 53 percent stake in telecom firm Maroc Telecom has drawn three known bidders, including Mideast telecom giant Etisalat.

"The price being offered remains unclear, with a range of $5.9 billion-$7.9 billion (€4.5 billion-€6 billion)," Tang said. Vivendi has been seeking $7.2 billion (€5.5 billion), he said.

"The consensus base case is a sale of Maroc with the bulk of the proceeds being used for [debt] de-leveraging leading to a dilutive impact on earnings per share," Tang said. He maintained his "neutral" rating on Vivendi's stock.

Meanwhile, Credit Suisse analyst Michael Senno said DirecTV's stock should benefit from the company's decision to stay disciplined in the GVT auction. "This announcement removes the biggest near-term overhang to our $3.9 billion 2013 [stock] buyback estimate," he said. 

DirecTV CEO Mike White had last month called GVT an asset that was a "nice-to-have, not a must-have." Said Senno: "Strategically, acquiring GVT would have enabled DirecTV to create the bundled offering it lacks in the U.S. However, given GVT only covers about 9 million homes in Brazil (10 percent broadband market share), we feel the competitive benefits did not warrant the premium Vivendi was reportedly asking."

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

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