Vivendi Said to Consider Company Breakup

Vivendi Said to Consider Overhaul, Possible Breakup of Company
Acitivsion Blizzard's Call of Duty: Black Ops video game, advertised in New York. Photographer: Jin Lee/Bloomberg

Vivendi SA is considering an overhaul of its company structure that may lead to a breakup of the owner of the world’s largest music and video-game companies, according to people with knowledge of the matter.

One option under discussion is to split the Paris-based company into two, with one part incorporating media assets such as Universal Music Group and video-game maker Activision Blizzard Inc., said the people, who asked not to be identified because the deliberations are private. The other would include Vivendi’s telecommunications and content distribution units, they said, adding that the internal review is at an early stage.

Vivendi’s supervisory board, led by Chairman Jean-Rene Fourtou, is seeking to reverse a slide in the company’s stock and reduce a discount he puts at almost 40 percent because of the way Vivendi is structured as a holding vehicle of multiple units. The board is due to discuss the alternatives during a three-day summit with top executives in June, one person said.

“It’s a sign that pressure is increasing on management, maybe even a war of nerves between shareholders and management,” said Conor O’Shea, an analyst at Kepler Capital Markets who advises holding Vivendi shares.

Other options may include a partial or complete spinoff of pay-TV operator Canal Plus, which is 20 percent owned by publisher Lagardere SCA, the people said.

Shares Jump

A Vivendi spokesman said the company vigorously denies intending to separate Canal Plus from the rest of its businesses. He said there has been no decision on a review of corporate structure and referred to a letter to shareholders on March 27.

Vivendi shares rose 4 percent to 13.87 euros in Paris, valuing the company at 17.3 billion euros ($22.9 billion), after gaining as much as 8.1 percent earlier today. They have fallen 18 percent this year, the worst performance in France’s benchmark CAC 40 Index.

In the letter looking into the reasons for a “disappointing” stock performance, Chief Executive Officer Jean-Bernard Levy said Vivendi’s portfolio of assets made sense, though he said the board “regularly posed the question of the group’s perimeter.”

Changes in top management may also be announced after the June meeting, one of the people said.

SFR Buyout

Levy last year spent 7.95 billion euros to take full control of French mobile-phone company SFR from Vodafone Group Plc. Vivendi’s largest division has seen its earnings decline as new operator Iliad SA builds market share.

At 16.6 billion euros as of yesterday’s close, Vivendi’s market capitalization compares with almost 40 billion euros in total value of its various businesses, not counting 12 billion euros of net debt, according to estimates by Morgan Stanley analysts. The investment bank values SFR alone at 12.9 billion euros, and Brazilian phone unit GVT at 5.2 billion euros.

“The supervisory board is likely to come under pressure to defend its decision to consolidate Vodafone’s SFR stake when the Iliad launch risks were well known,” Will Smith, an analyst at Jefferies International Ltd., wrote in a note.

A split of Vivendi’s communications and content-production activities would put an end to a combined business model that’s unique in Europe. Rival phone companies including Deutsche Telekom AG and France Telecom SA have de-emphasized media assets in favor of their core telecommunications businesses, at the same time seeking partnerships with outside content producers.

‘No Taboos’

Still, some analysts question whether direct sales of some of Vivendi’s assets may generate more value.

“The question is whether a split is the right decision,” said Claudio Aspesi, a London-based analyst at Sanford C Bernstein. “I’ve always believed that the most attractive option is actually to sell off a number of assets and potentially slim a company down to its core of SFR and Canal Plus.”

Levy and Fourtou already faced calls to change managers and invite new members to the board at the company’s shareholder meeting last week. Levy also came under fire from investors asking for plans to tackle the company’s low valuation.

“Our conglomerate discount has become gigantic, close to 40 percent,” Fourtou said at the meeting in Paris. “We will not stay idle, and there are no taboos about how we will tackle this. We will look over our strategy, our perimeter and our image among investors.”

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