Tue, Apr 05, 2011 - Page 10 News List

Vivendi to buy Vodafone’s stake in France’s SFR

Reuters, PARIS and LONDON

Vivendi has struck a deal to buy Vodafone’s 44 percent stake in France’s second-biggest telecom operator, SFR, for 7.75 billion euros (US$11 billion), giving it full control of its most lucrative unit.

Vivendi said it would also pay Vodafone an extra 200 million euros, reflecting the generation of cash between January and July this year.

The deal caps months of talks between the two telecom giants and puts an end to their roughly decade-long partnership in Europe’s third-biggest telecom market in terms of revenue.

With the accord, Vivendi CEO Jean-Bernard Levy delivers on his top mergers and acquisitions (M&A) priority, creating a new-look Vivendi with higher cash flows, more exposure to telecoms and its mature home market of France.

“The transaction will create a significant increase in Vivendi’s adjusted net income, enabling us to raise the dividend to our shareholders,” Levy in a statement said.

For Vodafone, the SFR deal is the largest sale it has done to date as part of its strategy to sell the minority stakes it does not control and retrench after a decade-long international expansion.

Responding to investor pressure to clean up its portfolio, Vodafone has already sold its minority stake in China Mobile (中國移動) and begun a sale process of the nearly 25 percent it owns of Poland’s Polkomtel.

Vivendi and Vodafone agreed on a price that puts SFR at an enterprise value of 6.2 times last year’s earnings before interest, taxes, depreciation and amortization (EBITDA).

Analysts are likely to see that as a good outcome for Vodafone, which has been signaling since last year that it wanted about 6 times EBITDA for its stake.

In its statement on Sunday, Vodafone said it would return 4.5 billion euros of the net proceeds to shareholders, or nearly 60 percent, by way of a share buyback. The rest of the proceeds would go to reducing the group’s debt.

For Vivendi, the price tag for SFR is also likely to allow it to keep its current credit rating, something its CEO had long pledged to preserve. Fitch Ratings earlier this year said it could pay up to 6.5 times EBITDA without affecting its rating.

Vivendi will pay for the SFR deal in cash, using proceeds from selling its 20 percent holding in NBC Universal and the settlement from an ownership dispute over a Polish telecom operator.

Both firms said in separate statements that the deal was expected to close by the end of June and was subject to regulatory approval.

They also said they would continue to work together as “commercial partners” for three years, in a reference to what is likely a roaming agreement between the two groups.

With the SFR deal behind them, Vivendi and Vodafone both have some key decisions to make on further M&A strategy.

Given the level of debt that Vivendi will likely hold after the SFR buyout, analysts and portfolio managers say the company will likely have to take a breather on further large acquisitions in the coming years.

However, one more deal may be on the horizon. If it still has money left over or the capacity to borrow after buying SFR, Vivendi could make an offer to buy Lagardere’s 20 percent stake in pay-TV business Canal+.

Lagardere was in the process of doing an initial public offering (IPO) of the stake, valued by analysts at 900 million euros to 1.25 billion euros, but put it on hold because of market volatility after Japan was struck by an earthquake and tsunami on March 11.

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