Vivendi Buys Time With Cost Cuts as Strategy Calls Loom

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Vivendi Raises Full-Year Forecast After Profit Beats Estimates
Chairman Jean-Rene Fourtou, 73, is weighing options -- from divestments to a potential revamp of group structure -- to erase a so-called conglomerate discount to the stock because of the company’s holding structure. Photographer: Scott Eells/Bloomberg

Vivendi SA said earnings will fall less than it expected this year, with cost cuts and video-game demand buying time for Chairman Jean-Rene Fourtou as he heads into a sixth month of weighing options for a strategy change.

While reviewing alternatives, Vivendi has adjusted to a slowing economy since Chief Executive Officer Jean-Bernard Levy’s ouster at the end of June. That helped contain the drop in third-quarter earnings and allowed Paris-based Vivendi to boost its prediction for full-year profit, adjusted for one-time gains and losses, to about 2.7 billion euros ($3.4 billion) from more than 2.5 billion euros.

The earnings performance is taking some pressure off Fourtou, 73, as he looks at everything from divestments to a revamp of group structure to boost a stock that has lost half its value in the past five years. Sales and profit jumped at video-game unit Activision Blizzard Inc., while cost cuts at French phone unit SFR began to take hold.

“First we’ll define a strategy, then we can think about possible asset sales,” Chief Financial Officer Philippe Capron said yesterday on a conference call. “We’re in the phase of validating and specifying our strategy and making sure the board and management are moving together.”

Vivendi shares rose as much as 5 percent in Paris, the biggest intraday advance since June 28. The stock was up 4.4 percent at 15.66 euros as of 9:28 a.m. and has rebounded from a nine-year low of 12 euros on April 19.

Stabilizing Market

The owner of record company Universal Music Group and phone operators in France, Morocco and Brazil reported a 2.9 percent drop in adjusted third-quarter profit to 665 million euros, beating the 598 million-euro average analyst projection compiled by Bloomberg. For the full-year, analysts’ predicted adjusted profit of 2.47 billion euros, compared with 2.95 billion euros the company reported last year.

Earnings at SFR, which accounts for about 38 percent of earnings before interest, taxes and amortization, will drop less than the company had forecast.

“The French telecommunications market is stabilizing and our cost-cutting is starting to make up for the falling prices on the market,” Capron said.

SFR has revamped its phone packages and worked on getting leaner to fight Iliad SA, which came into the market in January with discounted offers. Vivendi in March forecast a profit slump through 2013 because of more intense competition in the French telecommunications market.

Games including “Diablo III” and “World of Warcraft: Mists of Pandaria” helped Activision boost sales 26 percent and Ebita 54 percent.

French Billionaire

Fourtou’s pledge to overhaul Vivendi came as French billionaire Vincent Bollore, who owns advertising agency Havas SA, acquired a 5 percent stake to become one of the company’s top shareholders. Fourtou has invited Bollore to join Vivendi’s supervisory board.

As part of its strategic review, Vivendi has hired Rothschild and Deutsche Bank AG to study options for its Brazilian phone unit GVT, while Lazard Ltd. and Credit Agricole SA are advising on a possible sale of a stake in Maroc Telecom SA, people familiar with the matter have said. Fourtou has also attempted to find a buyer for Activision, according to people familiar with the situation.

Decisions on asset sales are likely to affect Vivendi’s cash flow, debt and dividend policy. Standard & Poor’s last month reaffirmed Vivendi’s credit rating, saying it expects management to keep a lid on debt as it reviews its asset portfolio. Vivendi, which said it would pay dividend amounting to 45 percent to 55 percent of adjusted net income, aims to reduce its net debt to less than 14 billion euros by the end of the year, from 15 billion as of Sept. 30.

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