Vivendi Deal-Making Skills Tested as Fourtou Meets Investors

Vivendi’s Deal-Making Skills Tested as Fourtou Meets Investors
Vivendi makes almost 40 percent of its sales from French wireless operator SFR, which along with France Telecom are trying to fend off low-cost offers by Iliad SA as a price war triggered by Iliad SA enters its second year. Photographer: Balint Porneczi/Bloomberg

Vivendi SA Chairman Jean-Rene Fourtou pledged a full strategy review to convince investors the telecommunications-to-media company can see through asset sales to refocus its business a year after first saying he’d do so.

The stock has jumped 43 percent since last year’s shareholders meeting, when Fourtou faced calls for changes and promised a “no-taboo” examination to tackle the Paris-based company’s low valuation. He ousted Vivendi’s chief executive officer two months later and proceeded with a plan to sell assets instead of pursuing a split-up of the group, whose units include the world’s biggest music and video-game companies.

The 73-year-old Frenchman has yet to deliver. Attempts to divest Brazilian Internet operator GVT and a stake in game publisher Activision Blizzard Inc. have failed because of valuation differences or insufficient interest. Vivendi is now reviewing bids for its majority stake in Maroc Telecom SA, and targets completion of a sale by October, people familiar with the matter said yesterday. A deal would mark Vivendi’s first breakthrough in revamping its structure.

“We are in a transition period. We are going toward a new Vivendi,” Fourtou told shareholders during an annual meeting at the Carrousel du Louvre near the Louvre Museum in Paris. “It is clear that the current organization of management is only a transition.”

Questions, Answers

The board is “actively regarding the future governance and management of Vivendi,” he said. “First we have to know what there is to manage and how. We’re working on these questions and will know the answers soon.”

French billionaire Vincent Bollore, appointed last year to Vivendi’s supervisory committee, “has not expressed a desire to take over my role as chairman immediately,” Fourtou said. “It is not a topic at the moment. Maybe it will be later on.”

Among topics that drew investors’ attention is intensifying competition in the French telecommunications market. France Telecom SA, the nation’s largest phone company, last week said it will look to cut more costs after reporting that its customers’ phone bills shrank 11 percent on average during the first quarter.

Vivendi makes almost 40 percent of its sales from French wireless operator SFR, which along with France Telecom is trying to fend off low-cost offers by Iliad SA as the price war enters its second year.

Stabilizing SFR

SFR earnings will first stabilize, then improve in 2014 to 2015, Vivendi Finance Chief Philippe Capron said. An initial public offering of the unit is an option, although not for the near term, Fourtou said. Vivendi is considering splitting off SFR from the rest of the company, people familiar with the matter said last month.

“Our priority is to reinforce business first at SFR,” Fourtou said.

Vivendi shares have jumped 21 percent since CEO Jean-Bernard Levy stepped down last June. Of 33 analysts who cover the company and are tracked by Bloomberg, 17 recommend buying the stock, 15 say hold and one advises selling. On average, they predict the stock will reach 17.66 euros. Vivendi fell 0.5 percent to 17.20 euros at the close in Paris.

Vivendi also owns music company Universal Music Group Inc. and French pay-television company Canal Plus.

Share Jump

“Actions speak louder than words,” said Claudio Aspesi, an analyst at Sanford C. Bernstein in London. “The shares jumped once the board and management started talking about refocusing the company, but now they need to show they are willing to effectively execute.”

While Vivendi wants as much as 5 billion euros ($6.6 billion) from the 53 percent holding in Maroc Telecom, according to one person briefed on the matter, a more realistic target would be in the range of 4 billion euros to 4.5 billion euros, two other people with knowledge of the sale said. Emirates Telecommunications Corp. and QSC Qatar Telecom submitted binding offers last week.

The sale could generate 4.5 billion euros, Liberum Capital analyst Ian Whittaker and Societe Generale SA sales specialist Saeed Baradar wrote yesterday in separate notes.

“We are collaborating closely with the Moroccan state on the Maroc Telecom transaction,” Fourtou said. “It takes time. It won’t be done before fall.”

Sales Fall

Maroc Telecom trades at 6.6 times projected 2013 earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg based on enterprise value, which includes debt. That compares with the median 5.2 times for carriers in Africa and the Middle East, the data show.

Emirates Telecommunications’ enterprise value is 4.3 times Ebitda, while the multiples at Safaricom Ltd. and Orascom Telecom Holding SAE are 5.3 and 3.6, respectively.

Maroc Telecom fell 2.4 percent to close at 111.75 dirhams in Casablanca trading yesterday, valuing Vivendi’s 53 percent stake at about $6.1 billion.

First-quarter earnings before interest, taxes and amortization rose 0.1 percent to 3 billion dirhams ($354 million), while sales fell 4.7 percent to 7.5 billion dirhams, Maroc Telecom reported today.

Bernstein’s Aspesi said the first asset sale will be important to show whether analysts’ valuations of Vivendi’s businesses are realistic. “It will also show how good the company is at negotiating,” he said in a phone interview.

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