Vivendi Considers Breakup After $8.2 Billion Activision Deal

Vivendi SA, announcing the sale of most of its stake in video-games maker Activision Blizzard Inc. today, said its board is considering splitting the French company up to let Chairman Jean-Rene Fourtou rebuild its remaining businesses around media and content.

“One possibility among others is that we engineer a split of the company with SFR being taken out of the perimeter,” Vivendi Chief Financial Officer Philippe Capron said during a conference call, after announcing the $8.2 billion disposal of the Activision holding to a group led by the unit’s chief executive officer. French mobile-phone company SFR is Paris-based Vivendi’s largest division.

Vivendi is breaking out of a standstill since Fourtou pledged a “no-taboo” strategy overhaul in April last year. The 74-year-old Frenchman, who made a name for himself in the pharmaceuticals industry at Aventis SA, will use part of the sale proceeds to cut Vivendi’s more than 13 billion euros ($17 billion) in net debt and rebuild it around Universal Music Group and pay-TV provider Canal Plus.

Bloomberg News reported in April 2012 that Vivendi was considering an overhaul that may lead to a breakup of the company. The sale of the Activision stake is the biggest transaction for Vivendi since it acquired full control of SFR from Vodafone Group Plc in 2011.

Maroc Sale

Vivendi said this week it had begun exclusive talks to sell a stake in Morocco’s Maroc Telecom SA to Emirates Telecommunications Corp. for 4.2 billion euros. If that deal goes through and Vivendi proceeds with a separation of SFR, the remaining assets -- Universal Music, Canal Plus and Brazilian broadband provider GVT -- accounted for about 40 percent of the company’s 2012 revenue. Vivendi halted a sale of GVT earlier this year after failing to get a satisfactory bid.

“The GVT process could be started again in the right circumstances,” Capron said. “That would leave us to start regrowing the group again around Universal Music and Canal.”

Vivendi rose 0.6 percent to 16.07 euros at the close in in Paris, after climbing as much as 5.8 percent. The stock has jumped 10 percent this month and the cost of insuring its debt using credit default swaps fell about 25 percent, proof that investors are beginning to recognize Fourtou’s efforts to overhaul the company.

Share Buyback?

Vivendi’s future dividend policy, acquisitions in media and possible share buybacks will be debated once the company makes a final decision on its strategy, involving a split or another scenario, Capron said today.

Activision, the maker of “Call of Duty” and “World of Warcraft,” will take on debt to purchase shares held by Vivendi for $13.60 each, or $5.83 billion in total. Activision CEO Bobby Kotick and his partners, who include co-Chairman Brian Kelly, Chinese video-game publisher Tencent Holdings Ltd., Davis Advisors and Leonard Green & Partners, will pay $2.34 billion.

The transactions, at a 10 percent discount to Activision’s closing price yesterday, end months of uncertainty for the Santa Monica, California-based company by making it independent again. Vivendi will be left with a 12 percent stake. Activision jumped 15 percent to $17.46 in New York, its highest level since 2008.

“The disposal of the Activision stake is after all a good outcome,” Claudio Aspesi, an analyst at Sanford C. Bernstein, said in a note to investors. “However, the disposal leaves a media-only strategy confused and shrunk.”

Price Differences

Last year, Vivendi canvassed possible buyers for its 61 percent Activision stake. Microsoft Corp. and Walt Disney Co. were among companies that demurred, people with knowledge of the matter said at the time.

Kotick’s group and Vivendi weren’t able to strike a deal earlier this year because of differences in price, two people familiar with the matter said. With Activision shares trading above $15 the past two weeks, a compromise was possible that allowed Vivendi to get cash and still retain a minority stake, while Activision was able to buy out the stock at a discount, said one of the people.

Activision Blizzard was the result of a 2008 merger after Vivendi agreed to contribute its $8.1 billion video-game business and pay $1.7 billion in cash. In exchange, Vivendi got control of the entity it combined with Activision Inc. to surpass Electronic Arts Inc., the market leader at the time.

Activision has increased revenue every year since the transaction. Its $4.9 billion in 2012 sales compared with $3.8 billion for Electronic Arts’s most recent financial year, data compiled by Bloomberg showed.

Expanding Reach

With ownership firmly back in Kotick’s hands, Activision can purchase video-game companies overseas and invest more money to expand its reach, said Michael Pachter, an analyst with Wedbush Securities in Los Angeles.

For Vivendi, the decision to shift to media followed the company’s quest to reverse a stock slide Fourtou had attributed to the group’s holding-company structure. The revamp marks another chapter in the improbable transformation of a former water utility into a global media group.

Former CEO Jean-Marie Messier embarked on a $77 billion acquisition spree in music, film and telecommunications before being pushed aside in a 2002 boardroom coup. Jean-Bernard Levy, his successor, went on to reinforce Vivendi’s presence in telecommunications by buying a stake in Brazil’s GVT in 2009 for 2.8 billion euros and gaining full control of SFR for 8 billion euros in 2011. Levy was removed in June last year and Fourtou retook oversight of the company.

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