Vivendi Profit Declines as France Pay-TV Unit Remains Pressured

  • Vivendi plans costs cuts of 300 million euros at Canal Plus
  • French media company fighting war of words with Mediaset

Vivendi SA, the media company led by billionaire Vincent Bollore, posted second-quarter earnings that missed analysts’ estimates as its pay-TV unit Canal Plus continued to lose money and subscribers in France.

Adjusted net income fell 3.1 percent to 187 million euros ($211 million), the company said Thursday after the market close in Paris. Analysts had predicted profit of 193.2 million euros, the average of five estimates. The stock declined 1.7 percent at 9:30 a.m. to 17.28 euros.

“With no evidence of a turnaround at Canal Plus, fundamentals for Vivendi remain mixed,” Polo Tang, an analyst at UBS, said in a note to clients, adding there is “limited visibility” on the use of cash and longer-term strategy for Vivendi.

Run by chairman and former activist investor Bollore, Vivendi is building a southern European media group with Canal Plus, seeking combinations to expand in video, music and distribution. Bollore’s ambitions have put him at loggerheads with the founding family of video-game company Ubisoft Entertainment and more recently with Mediaset SpA after Paris-based Vivendi pulled out of an April deal to buy the Italian broadcaster’s pay-TV unit.

Vivendi plans to reduce costs by 300 million euros at Canal Plus, of which 60 million euros to 80 million euros will be realized this year. The objective is to reach break-even in 2018 in France and to achieve a level of profitability similar to that of its best European peers in the medium-term, Vivendi Chief Executive Officer Arnaud de Puyfontaine said during a conference call. “We’re confident in our strategy,” he said.

Canal Plus made a profit from operations of 133 million euros in the quarter, supported by subscriber growth in Vietnam and Africa while the pay-TV operations in mainland France were a drag on earnings, which fell 38 percent compared with a year earlier. Canal Plus has lost subscribers in France since 2012, when BeIn snared important rights, such as matches from top-league French soccer. Universal Music Group made an operating profit of 115 million euros, an advance of 26 percent.

Vivendi Chief Financial Officer Herve Philippe confirmed an earlier prediction that Canal Plus may post an operating loss of 400 million euros in France this year after a deficit of 264 million euros in 2015.

Mediaset, controlled by the family of former Italian prime minister Silvio Berlusconi, last month rejected an alternative proposal for an alliance with Vivendi. The conflict between the two European media companies has descended into a war of words in recent weeks with Berlusconi investment vehicle Fininvest SpA filing legal action in Milan. Fininvest is seeking at least 570 millions euros in damages to force Vivendi to honor the original agreement to buy the pay-TV business, while Mediaset has estimated its claim at more than 1.5 billion euros.

While Mediaset has suggested Vivendi and Bollore were plotting a takeover, Vivendi insists it only backed out of the deal because Mediaset’s financial projections for the loss-making Premium TV unit had proved to be unrealistic.

"While they continued discussing with Vivendi, Mediaset and Fininvest suddenly proceeded to launch media attacks detrimental to Vivendi’s interests and image," the French media company said Thursday.

Replying to Vivendi, Mediaset said in an e-mail comment that the French company’s statement is groundless and the April contract is definitive and irrevocable.

Vivendi said that according to documents it has viewed, the first procedural hearing for the lawsuit filed by Mediaset won’t be held before Feb. 27, 2017. The French company also said that the European Commission wouldn’t accept a formal filing for the deal with Mediaset while the parties were “discussing their differences” and that it’s possible the commission won’t clear the deal before the contract becomes void on Sept. 30.

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