Vivendi SA (VIV) and STMicroelectronics SA (STM), each considering a reorganization to boost their competitiveness, face a hurdle as French President Francois Hollande struggles to keep an election pledge on job creation.
Industry Minister Arnaud Montebourg today hosted STMicroelectronics Chairman Didier Lombard at Bercy to discuss stragtegy as Europe’s biggest chipmaker evaluates options ranging from asset sales to a break-up, people with knowledge of the matter said, asking not to be named because the gathering is private. A separate session with Vivendi’s Jean-Rene Fourtou was postponed due to scheduling issues, said a ministry official.
With Vivendi and STMicroelectronics employing about 26,000 workers in France in total, the government would be interested in any potential job eliminations from a reorganization, said the people. Even as Hollande had campaigned on the promise of “social justice,” his government last month had to backtrack on its objection to the closure of a PSA Peugeot Citroen (UG) factory in France as auto demand slumped.
“The perception is that the first priority of the French government is to protect jobs,” said Claudio Aspesi, an analyst at Sanford Bernstein in London. In the case of Vivendi, “there’s a question of what the government can live with, and that could be a tough conversation.”
Both companies face pressure from investors to boost returns. Vivendi shares had dropped 21 percent and STMicroelectronics’s stock had declined 18 percent in the two years through yesterday on the Paris exchange, both exceeding a 11 percent loss for the benchmark CAC 40 Index. (CAC)
Vivendi added 1.8 percent to close at 16 euros in the French capital. The company said today billionaire Vincent Bollore, who owns advertising agency Havas SA (HAV), became its biggest shareholder after taking a 5 percent holding.
STMicroelectronics gained 2 percent to 4.70 euros.
France’s economy hasn’t grown for the three quarters through June, a streak that national statistics office Insee predicts will continue into the third and fourth quarters. Unemployment in Europe’s second-largest economy, behind Germany, is at a 13-year high.
Representatives at Paris-based Vivendi and Geneva-based STMicroelectronics declined to comment.
Montebourg and Hollande haven’t hesitated to push back against French companies’ plans before. The minister last month said he and other officials persuaded Sanofi (SAN) to reduce the scope of job cuts to about 900 from 2,500 as France’s largest drugmaker seeks to scale down its local operations.
Hollande, who has pledged to raise taxes and step up government hiring, initially said the planned closure of a Peugeot assembly line outside Paris and layoffs were “unacceptable,” before his government reversed its position, citing worsening conditions in Europe’s car market.
Montebourg last week announced measures intended to spur employment in the French telecommunications industry. Vivendi’s SFR mobile-phone unit is preparing to negotiate layoff plans with unions in November.
With Fourtou pledging to overhaul Vivendi’s unique telecommunications-to-media structure, the company is exploring options for the future of SFR, the second-largest mobile operator in France’s increasingly competitive phone market, according to people with knowledge of its plans.
Vivendi has informally discussed a sale to former co-owner Vodafone Group Plc (VOD), though the two companies remain widely divided on a valuation, according to the people. Vivendi last year paid almost 8 billion euros ($10.4 billion) for Vodafone’s 44 percent stake in the operator.
Concerns over valuation and deal structure also stand in the way of a potential tie-up with Numericable, the French cable operator owned by private-equity firms including Carlyle Group LP (CG) that has approached Vivendi about a potential merger with SFR, the people said.
Fourtou’s sale efforts are also proceeding slowly outside France. His attempt to find a buyer for Activision Blizzard Inc. (ATVI), the Santa Monica, California-based video-game publishing unit behind hit titles like “Call of Duty,” has largely failed after potential buyers balked at the $12.6 billion market value, according to people familiar with the situation.
Vivendi is also considering options for its phone assets in Morocco and Brazil. The company has hired Lazard Ltd. (LAZ) and Credit Agricole SA (ACA) to explore a sale of Maroc Telecom SA (IAM), according to people familiar with the matter. It mandated Deutsche Bank AG and Rothschild to work on GVT, the Brazilian broadband provider it purchased in 2009.
Vivendi will first have to agree with the government of Morocco, which owns 30 percent of Maroc Telecom. A sale of GVT will also be difficult as two of the most logical buyers, Telecom Italia SpA (TIT) and Telefonica SA (TEF), face financing challenges as they seek to reduce debt, the people said.
The French government may also weigh in on potential sales of assets like GVT and Maroc Telecom that strengthened the country’s links to fast-growing emerging markets like Brazil and North Africa, Sanford Bernstein’s Aspesi said.
STMicroelectronics is evaluating a reorganization as rapid swings in demand and stiff competition from Asia roil the semiconductor industry. The chip manufacturer may split its analog business, which makes chips for cars and video-game consoles, from slower-growing digital assets, people familiar with its deliberations said last week.
Any such deal would have to be structured carefully to blunt the impact of job losses in France and Italy, whose governments together own 27.5 percent of the company, the people said.
STMicroelectronics has said it is working with an adviser to define a strategy for ST-Ericsson, its wireless venture with Sweden’s Ericsson AB, about five months after it announced plans to eliminate 1,700 jobs at the unit and transfer some product development to trim costs.
ST-Ericsson, which competes with San Diego-based market leader Qualcomm Inc. (QCOM), hasn’t been profitable since it was formed in 2009 as its newer smartphone and tablet chips haven’t offset a fall in sales of older products. The company has struggled to bring out higher-powered chipsets and platforms as the low-end phone business at major client Nokia Oyj (NOK1V) have declined.
A visit to Bercy before major restructuring is becoming a tradition in Hollande’s France. Alcatel-Lucent SA came under scrutiny from Montebourg’s team in July and Chairman Philippe Camus was called in for a meeting. Alcatel said on July 26 it would eliminate 5,000 jobs to cut costs after slumping to a loss, sending the stock to its lowest level since at least 1989.
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