Vivendi Investors Demand More Than Fun and Games

Vivendi SA Chief Executive Officer Jean-Bernard Levy needs to deliver more than video-games-driven profit growth to convince investors to buy the stock.

Vivendi shares have fallen 15 percent in Paris this year, compared with a 9.6 percent drop in the benchmark CAC-40 index. That’s even after the owner of the world’s largest video-games supplier and biggest music company posted a 13 percent rise in first-quarter profit, the biggest gain in more than two years.

With majority stakes in video-games maker Activision Blizzard Inc., French mobile-phone operator SFR and pay-TV chain Canal Plus, analysts have labeled Vivendi a holding company. Some investors would prefer to diversify on their own rather than have the company do it for them, said Lieven de Schryver, an analyst at Petercam SA in Brussels.

“If you’re bullish on gaming and you’re an international investor, you can just buy into Activision directly,” he said. “To get rid of that holding discount, you need to buy out minorities.”

Levy, 55, has said he would like to buy out minority shareholders of SFR and Canal Plus. He has also pledged to drive telecommunications growth with acquisitions in emerging markets like Africa and Latin America, while protecting the Paris-based company’s dividend and credit rating.

Photographer: Daniel Acker/Bloomberg

Vivendi SA chairman and chief executive officer Jean-Bernard Levy. Close

Vivendi SA chairman and chief executive officer Jean-Bernard Levy.

Photographer: Daniel Acker/Bloomberg

Vivendi SA chairman and chief executive officer Jean-Bernard Levy.

Vivendi said March 1 it would pay an annual dividend of 1.40 euros a share. Levy has said the company has a “permanent commitment” to maintain the payments at a high level to “satisfy shareholder expectations.”

Vivendi’s 9.5 billion euros ($11.97 billion) in debt at the end of March is rated Baa2 by Moody’s Investors Service, and BBB by Standard & Poor’s, both two notches above junk.

Levy’s Choice

With the $5.8 billion the company is getting from its sale of a 20 percent stake last year in NBC Universal, Vivendi can fulfil one of those ambitions, Chief Financial Officer Philippe Capron said on a conference call on May 11.

The proceeds “would enable us, for example, to make a significant acquisition overseas,” Capron said. “Alternately, it would enable us to buy the stake owned by Vodafone in SFR. What’s clear is that we cannot simultaneously do both.”

That leaves Levy having to choose between providing investors rapid growth or predictable value.

“Vivendi will always have the problem of not being a telco and not being media, so people complain it should have a holding discount,” said Alexander Wisch, an analyst at Standard & Poor’s Equity Research in London.


Vivendi owns 80 percent of Canal Plus France, with Lagardere SCA holding the rest. It owns 56 percent of SFR, while Vodafone Group Plc holds 44 percent. On April 15, Lagardere initiated a process to dispose of its 20 percent holding in Canal Plus France, which can be pre-empted by Vivendi. Analysts value the stake at about 1 billion euros, and Vivendi has said it’s interested in it.

No discussions are underway with Vodafone, Levy said in March. The Vodafone stake in SFR is worth about 7.2 billion euros, according to CreditSights analysts Mark Chapman and Chris Ucko.

SFR contributed about 46 percent of sales and 51 percent of earnings before interest, taxes, depreciation, and amortization last year, while Canal Plus Group accounted for 17 percent of sales and 11 percent of Ebitda. Universal Music made up 16 percent of sales, while Activision brought in 11 percent. The music and games units each contributed 8.6 percent of Ebitda.

Vivendi’s current composition provides some advantages, said Andy Lynch, who manages about 1.5 billion euros at Schroder Investment Management in London.

Cash Flow

“SFR is a source of good cash flow and a solid underpinning for the rest of the group that gives them cash to put into other interesting assets,” he said. “Obviously they need to really make sure they don’t overpay for acquisitions.”

In a BFM radio interview on May 12, Levy said Vivendi “fires on three motors: high-end Internet in France, video games and emerging markets expansion.”

Although Vivendi said it gained ground in high-end Internet in France in the first quarter, it is bracing for a new rival in the French market. Discount broadband provider Iliad SA in December won a license to become the fourth full-service mobile operator in the country, pledging to drive down prices in a market with higher-than-average fees.

In emerging markets, assets are becoming expensive as competitors move in.

Last November, Vivendi outbid Telefonica SA for control of Brazilian telecom operator GVT (Holding) SA, raising its initial bid to $4.18 billion to top the Spanish rival.

Perceived Value

“Telco assets around the world are expensive, and there are no easy stories anymore,” Claudio Aspesi, an analyst at Sanford Bernstein in London, said by phone. Completing successful deals will require Vivendi to accept paying competitive prices and “execute incredibly well,” he said.

India’s Bharti Airtel Ltd. agreed in March to pay $9 billion for assets in 15 African countries owned by Kuwaiti operator Zain. Vivendi had been in talks to purchase the same assets before walking away over price.

Vivendi wants “to be a growth company,” de Schryver said. “For investors, Vivendi is more perceived as a value stock, with a significant holding discount.”

Activision games such as “Call of Duty” and “World of Warcraft” boosted first-quarter adjusted net income, or profit excluding one-time gains and some costs to 736 million euros, beating analysts’ 658.9 million-euro estimate.

Still, the company may need to do more to bolster its stock, said Conor O’Shea, an analyst at Kepler Capital Markets in Paris. Vivendi is perceived as a holding-discounted stock, he said. “That’s not going to change overnight.”

To contact the reporter on this story: Matthew Campbell in London at

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