A year ago, Vivendi SA proclaimed an "important binding strategic and industrial agreement" with Italian broadcaster Mediaset SpA. Today the two groups have locked horns, with litigation pending over supposed violations of the deal and price. Vivendi's ambition of using Mediaset to help it become a media powerhouse in southern Europe remains stymied.
On the surface of it, the slapdown delivered to Vivendi by Italy's communications regulator this week should just deepen the French company's frustration. AGCOM said Vivendi was in breach of local media ownership rules because it owns big stakes in both Telecom Italia SpA and Mediaset.
Yet given all the bad blood, Vivendi might want to use this as an opportunity to start afresh with Mediaset. Neither Vincent Bollore, the Breton billionaire who controls Vivendi, nor Silvio Berlusconi, the former Italian prime minister behind Mediaset, can be happy with the status quo. Both would be better served by reaching an accommodation.
While AGCOM didn't prescribe remedies, its decision means Vivendi may need to sell part of its 28.8 percent stake in Mediaset or its 23.9 percent stake in Telecom Italia so it doesn't have effective control over the two companies. Vivendi has 60 days to answer AGCOM and will probably appeal, so the wrangling could go on a while.
Instead of digging in, Vivendi and Mediaset should start talking again. Mediaset's position has been strengthened by AGCOM, and the Berlusconis are a little more flush after agreeing to sell their soccer team AC Milan. But they mustn't overplay their hand. Mediaset shares are being propped up by takeover speculation, and its underlying prospects are weak.
Vivendi, meanwhile, should stop fighting and prove to investors that the more than 5 billion euros ($5.4 billion) of capital allocated to Italy hasn't been spent recklessly. Vivendi paid 3.9 billion euros for Telecom Italia shares in 2015 and 2016, and 1.26 billion euros for its Mediaset stake.
Vivendi executives say this is all part of a master plan to build an international media company that teams up with telecom companies to make sure its content is properly distributed. As I've argued before, the rationale is flimsy. Vivendi is Bollore's fiefdom and he does what he wants, with little explanation, while the strategic logic is grafted on afterwards for outside consumption.
Some investors seem fine with this, trusting the tycoon to live up to his historic record for creating value through corporate raids. Yet the Italy adventure hasn't delivered much so far.
If Telecom Italia and Mediaset shares keep falling, Vivendi would end up with paper losses. Citigroup analyst Thomas Singlehurst reckons Vivendi paid an average price per Mediaset share of about 4 euros, 15 percent lower than the current price. For Telecom Italia, the average price was 1.12 euros per share compared to a current price of 0.77 euros.
Given the downside for both sides, the wise choice would be to seek common ground. This isn't the time for Bollore and the Berlusconis to be bullheaded.
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