Vivendi Studies Strategies After Two-Way Split Ruled Out

Vivendi Universal CEO Jean-Rene Fourtou
Jean-Rene Fourtou, chairman and chief executive officer of Vivendi Universal. Photographer: Scott Eells/Bloomberg

Vivendi SA, Europe’s biggest media and telecommunications company, ruled out splitting into its two main businesses and is studying other ways of reorganizing to boost the stock price.

Vivendi, which also owns Universal Music Group and controls video-game producer Activision Blizzard, needs a new structure, and “don’t think that we won’t do anything,” Chief Financial Officer Philippe Capron told journalists at Vivendi headquarters in Paris. “We’ll get things done. The board has deemed it necessary.” A decision against dividing into two companies still “leaves room for a whole lot of other scenarios.”

The company’s stock rose the most in two months after Vivendi posted second-quarter profit that beat analysts’ estimates and announced cost cuts at its French mobile-phone unit as part of the five-month-old strategy overhaul. Vivendi also raised forecasts for Activision and the GVT phone and cable-television business in Brazil.

Vivendi is “taking a fundamental review of its business rather than a ‘quick fix,’” Ian Whittaker, an analyst at Liberum Capital Ltd. who recommends buying the stock and values the combined businesses at 20 euros per share, wrote in a note.

Chairman Jean-Rene Fourtou has taken the lead in overseeing the reorganization after Jean-Bernard Levy was ousted as chief executive officer at the end of June amid a dispute over strategy. Interim CEO Jean-Francois Dubos said on the call today that Vivendi will “go at our own speed” and will announce “any movement when appropriate.”

‘Quality Rating’

A “straight breakup” into media and telecommunications businesses “would lead to great difficulties in proportioning the debt,” Capron said today on a conference call. “We do not see the possibility of retaining a quality rating” on the independent entities. At the same time, “Nothing is taboo and we are reviewing all options, provided we can also preserve value for bondholders.”

Vivendi rose as much as 4.9 percent to 15.85 euros, the biggest intraday jump since Levy’s departure as CEO on June 28, and was trading up 2.8 percent at 4:56 p.m. in Paris. The stock has gained 16 percent since the CEO’s ouster, valuing the company at 20.2 billion euros ($25.3 billion).

Net Debt

The company’s long-term debt is rated Baa2 at Moody’s Investors Service and BBB at both Standard & Poor’s and Fitch Ratings, the second-lowest investment grade at all three credit-reporting companies. Net debt totaled 14.1 billion euros at end of June, Vivendi said today.

“The main focus of investors’ attention remains on value that could be achieved from a breakup of the conglomerate structure and the sum of its parts,” Stephen Snaith, an analyst at Allianz SE, said today in an e-mail. Executives “continue to give indications that work on this is on-going and that announcements will happen in the future, which should be taken positively.”

Under Fourtou, Vivendi has hired Rothschild and Deutsche Bank AG to study strategic options for GVT, two people familiar with the matter said this month. Vivendi acquired GVT for $4.18 billion in 2009 after trumping a bid from Spain’s Telefonica SA.

SFR’s Role

Fourtou, who has been in his post since 2002, is looking at changing directions 14 months after Vivendi spent 7.95 billion euros to buy out Vodafone Group Plc’s share in their SFR venture. SFR is France’s second-largest mobile-phone company, after France Telecom SA’s Orange brand, and it’s the largest contributor to Vivendi’s profit.

The chairman is considering drawing focus away from Vivendi’s telecommunications businesses, which he believes require too much investment to be successful and lack scale, people familiar with the matter have said.

Fourtou said last month in an interview that he’s seeking a buyer for Vivendi’s stake in Activision. Vivendi may sell the stake to the Santa Monica, California-based game producer after finding little interest from potential buyers, people familiar with the matter have said.

Second-quarter net income adjusted for one-time gains and costs was 706 million euros, beating the 652 million-euro average estimate of eight analysts compiled by Bloomberg. Sales fell 1.5 percent to 6.97 billion euros, matching estimates.

Keeping Forecast

Vivendi reiterated its full-year target for adjusted net income of more than 2.5 billion euros. It boosted a forecast for earnings before interest, taxes and amortization at Activision by 6.7 percent to 800 million euros. Vivendi also increased revenue-growth and profit-margin projections at GVT.

SFR’s Ebita in the quarter slumped 18 percent from a year earlier to 552 million euros. Vivendi today said it’s targeting annual operating-cost savings of about 500 million euros by the end of 2014 at the unit.

Iliad SA, France’s fourth mobile carrier, grabbed 4 percent of the country’s wireless market in its first 80 days of business with discounted packages starting at 2 euros a month. Local third-ranked competitor Bouygues SA cut its profit target this week, citing increased competition. Iliad is scheduled to report earnings tomorrow.

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