Vivendi Promises 2014 Split to End SFR’s Weight on Profit

Vivendi SA, seeking to boost its shares by transforming into a media company, plans to split out French phone carrier SFR by July 2014 after the unit dragged profits down in the third quarter.

The Universal Music Group owner posted profit adjusted for non-recurring elements declined 15 percent from a year earlier to 403 million euros ($543 million), beating the 386 million-euro average of estimates compiled by Bloomberg. Sales were 5.3 billion euros, in line with the analysts’ expectations.

While it has yet to decide on the details of SFR’s future, the “goal” is to seek an independent listing by the end of the first half next year, Chief Financial Officer Philippe Capron said in an earnings call. With that, Paris-based Vivendi is nearing the end of a two-year realignment involving asset sales and a full change in management to focus on music, pay-television, European cinema and Internet in Brazil.

“We looked at all the aspects -- regulatory, legal, social, tax and financing -- and we identified no roadblocks for the de-merger,” Capron said. “We know what we’re up against and we feel confident this will be done in due time.”

The shares rose 2.4 percent to 18.67 euros at 9:05 a.m. in Paris. Vivendi has gained 10 percent this year.

After selling stakes in video-game maker Activision Blizzard Inc. and Maroc Telecom SA for about $14 billion, the company last month also ended a legal battle over Canal Plus France, buying Lagardere SCA’s stake in the unit for 1.02 billion euros. Vivendi has promised to say next year how it will use cash from the deals or structure the rest of its core assets -- pay-TV unit Canal Plus, Universal Music and Brazilian Internet company GVT -- into a new entity separate from SFR.

Price Wars

SFR, which accounted for half of Vivendi’s nine-month earnings before interest and income tax, has discounted phone packages to cope with price wars with rivals Orange SA, Iliad SA and Bouygues SA. The unit’s Ebita fell 38 percent to 334 million euros in the third quarter, as sales declined 8.7 percent to 2.5 billion euros.

This month, Bouygues Telecom joined the low-cost fray adding to price wars in France by pulling some services out of its fixed packages under the B&You brand to cut in half the 30-euro average monthly market price for broadband, phone and Internet services grouped together.

Cost cuts helped SFR’s profits excluding non-recurring items slow their fall in the third quarter, compared to the first half of the year.

Vivendi confirmed its full-year outlook for all activities.

Executive Moves

“We are reassured by these results. Despite continued weakness in the quarter, performance at SFR appears to be stabilizing,” Claudio Aspesi, a Sanford C. Bernstein analyst, wrote in a note. “Investors are likely to be particularly heartened by a more concrete timeline for the de-merger.”

Vivendi in the coming months will have to answer questions on who will lead the future media group. Capron, who is going to Veolia Environnement SA in January, said Vivendi has yet to name his successor.

“As Vivendi considers its most transformative deal of spinning-off SFR, the final asset constellation of the company and leadership remain a key question,” Moody’s Investors Service analysts, lead by Gunjan Dixit, wrote in a Nov. 7 note. Capron’s departure has a negative impact on Vivendi’s credit-rating outlook, Moody’s said.

Chief Executive Officer Jean-Francois Dubos, named to help with the overhaul, and Chairman Jean-Rene Fourtou will step down after the split with SFR. Fourtou said last month he will consider handing his post over to the company’s shareholder and Vice Chairman Vincent Bollore then. Vivendi hasn’t named anyone to take over from Dubos.

Fourtou, bowing to investor pressure to overhaul the company, this month helped Vivendi reach a final agreement to sell its $5.7 billion stake in Maroc Telecom to Emirates Telecommunications Corp. Activision, along with an investor group led by the unit’s CEO Bobby Kotick, purchased most of Vivendi’s controlling stake for $8.17 billion last month.

Before it's here, it's on the Bloomberg Terminal.