Vivendi takes big hit on big buy in Q2

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LONDON -- Second-quarter earnings at entertainment conglomerate Vivendi took a 49% hit thanks in part to costs stemming from the company's purchase of a rival satellite pay TV business earlier this year, but the company on Friday reiterated its outlook for adjusted profit of more than €2.7 billion ($3.7 billion) in 2007.

Some analysts and investors had hoped for a guidance increase though. "Management were relatively cautious on the outlook for the full year, with the company yet again seemingly reluctant to raise expectations significantly," UBS analysts Ian Whittaker and Polo Tang said. They expect a €2.9 billion-plus full-year profit

At a press briefing Friday, Canal Plus Group topper Bertrand Meheut dismissed as "rumors" recent speculation that the company was bidding to acquire Germany's Premiere, but said that both Premiere and Spain's Sogecable could be of interest to the French company.

"If there are opportunities for pay television abroad, we are interested," he said, adding that Vivendi was "ready to support (Canal Plus) if an acquisition made sense."

In the latest quarter, Vivendi once again benefited from improved results at pay TV arm Canal Plus Group and its video games unit.

The drop in Vivendi's second-quarter profit, to €594 million ($810.3 million), was largely due to a gain on the sale of shares last year in chemical maker DuPont. But analysts said profit was also depressed by higher costs, including the €38 million ($51.8 million) spent so far on the integration of rival Television par Satellite with its own pay TV service Canal Plus.

"The first test for the pay TV business is the end of this year when they have to renegotiate for the French football (soccer) games," said Nick Bell, analyst at Bear Sterns in London. Canal Plus won the right to air French Premiere League soccer in the last round by paying a knockout price that also made TPS vulnerable to a takeover.

"The question now is can they get the costs of football down to a more reasonable level given they don't have a big competitor," Bell said.

Second-quarter adjusted profit, which excludes one-time items, rose to €755 million ($1 billion) from €750 million a year earlier, the Paris-based company said. First-half adjusted profit rose 11% to €1.53 billion ($2.1 billion), below the average analyst expectation of €1.69 billion ($2.3 billion).

Vivendi had a month earlier reported a second-quarter revenue gain of 7.4%.

In January, Vivendi combined Canal Plus with smaller competitor TPS to create a single French pay TV company. Canal Plus reported a 59% rise in earnings before interest, taxes and amortization in the first half, to €302 million ($411.8 million), from €190 million a year earlier.

Vivendi's video games division posted a 92% rise in first-half EBITA, to €119 million ($162.3 million), thanks in part to the continued success of hit game "World of Warcraft."

In May, the company bought Bertelsmann AG's BMG music-publishing unit for €1.63 billion ($2.22 million), creating the world's largest song catalog.

Vivendi's Universal Music Group reported a decline in first-half EBITA of €75 million ($102.3 million) to €220 million ($300 million), which Bell said was "defying gravity" given the difficulties in the music business posed by Internet piracy.

The company reported that digital sales of music were up by approximately 50% but this was not enough to offset the weakness across the industry in the sale of physical records.

Georg Szalai in New York contributed to this report.
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