* Debate revived over hybrid telecom-to-content model
* CEO says ongoing review of portfolio, strategy underway
* Investment bankers pitching ideas, but few quick fixes
* French telecoms unit SFR hit by brutal competition
* Shares near nine-year lows
By Leila Abboud and Sophie Sassard
PARIS/LONDON, May 3 (Reuters) - Vivendi is reviewing its entertainment-to-telecoms structure, and investment banks are pitching ideas on the best strategy to reverse the deep slump in its share price, sources told Reuters.
Serious problems at Vivendi's cash cow, the French mobile operator SFR, have prompted the board to re-open a decade-old debate over the company's hybrid structure and have put chief executive Jean-Bernard Levy in the hot seat.
Board chairman Jean-Rene Fourtou and Levy expressed dismay with the share price, at nine-year lows, in a March 27 letter to shareholders, and said questioning the scope of the group's activities was "not taboo".
Levy said in an interview that Vivendi was constantly reviewing ways to optimise its portfolio of assets, although he would not comment on specific disposals or changes to the corporate structure.
"No doubt they are soul-searching about what to do next," said an investment banker Who asked not to be named. "Up until now the board has supported management and its strategy, but things are getting critical, and there could be a split."
"Everything is under scrutiny," said a person who knows the company well. "When they put in the shareholder letter that nothing was taboo, it was a call to bankers to pitch ideas."
Financial sources say bankers are working on proposals that range from selling off individual business units, such as Maroc Telecom worth some 5.4 billion euros, to carving up the company with telecoms on one side and media on the other.
But despite growing excitement at the prospect of a break-up or asset sales, stoked by media reports and the sight of billionaire corporate raider Vincent Bollore building up a stake, investors might need to show a little patience.
Bollore is positioning himself as a long-term investor, working with Vivendi's board, not pushing for radical change, according to people familiar with his thinking.
More importantly, the principal architects of Vivendi's strategy in the past decade, Fourtou and Levy, remain at the helm, and it might take the departure of one or both of them, or at least a seemly period for their views to evolve, before the company can plot a different course.
The board and management will discuss group strategy and structure at an annual three-day meeting in June. A spokesman said the event wouldn't likely lead to big announcements.
'DESSERT AND CHEESE'
Now an emblem of French capitalism, Vivendi traces its roots back to 1853, when Napoleon III founded it as a public utility to supply water to Lyon. It later expanded into property, environment and waste services until charismatic former CEO Jean-Marie Messier pushed it to the brink of bankruptcy in 2002, chasing his vision for an integrated telecom-and-content empire.
Fourtou was brought in as CEO to save Vivendi and swiftly organised fire sales of publishing and environment units. Levy was Fourtou's lieutenant and hand-picked successor.
Via deal-making, the duo built Vivendi into what it is today, with mature telecoms businesses in France and Morocco generating nearly 60 percent of operating profits, growth coming from Brazilian telecom GVT and video games maker Activision Blizzard, plus smaller pay-TV and music units.
Although they cleaned up the company's financial position and did a few growth-oriented acquisitions, Fourtou and Levy were no more able than Messier to generate synergies between their telecom and content units.
"Even all these years later, it's quite ironic to see that the company is back to square one," said a former Vivendi executive.
"The share price is at its lowest level, there are still no synergies between the different operations, and it's even harder to sell businesses now that they are less valuable."
Instead of seeking synergies across the group, Levy and Fourtou focused on improving cash generation and structure by buying out minorities, such as Vodafone's stake in SFR for 7.95 billion euros last year.
Levy argued that the deal would allow Vivendi to pay higher dividends and help narrow the long-standing conglomerate discount that investors put on the group's shares because its various businesses have little in common.
The SFR deal hasn't delivered on either of those promises, however, because its benefits were negated by the widely anticipated arrival of a new low-cost mobile operator Iliad in January.
Levy is now criticised for doubling Vivendi's exposure to French telecoms less than a year before the launch of Iliad's 'Free Mobile'. Investors were particularly irked when he actually cut the dividend in March.
Vivendi insiders used to joke that the media and telecoms combo was like serving diners both sweet dessert and cheese, instead of the customary either or.
The question now is whether Fourtou and Levy are prepared to address that unpalatable offering, and, if so, what structure would be more to shareholders' taste.
Some investors and observers also wonder whether the two long-time allies have grown apart, and chatter in Paris has begun as to whether Levy could be forced out if SFR's performance doesn't improve soon.
Fortou declined to be interviewed for this story.
Levy said SFR needed a new strategy and has named a new CEO to that end, adding that he was in constant dialogue with the board to determine Vivendi's course.
Meanwhile, the company is in a period of introspection.
Among the options are unloading pay-TV unit Canal+ by reviving a public listing begun last year by minority shareholder Lagardere, or selling the 60 percent stake in World of Warcraft maker Activision, worth 7 billion euros.
Such moves would raise cash to pay down debt or reward shareholders with a special dividend or buyback, banking sources said, but they would not likely change investors' view that Vivendi has limited growth prospects.
"Unfortunately, it's not as easy as people think it is when you look at the structure of the group. Some of the assets aren't easy to sell, such as Maroc Telecom, where the state is a shareholder and politics plays a big role," according to a source familiar with the company.
"Those that are easy to sell like Activision or GVT wouldn't really give Vivendi a compelling equity story."
A Bloomberg report on April 26 said Vivendi was weighing splitting itself into two parts: telecoms and pay-TV in one company and music and video games in another. Vivendi "vigorously" denied the report.
Several banking sources said such a scenario was unlikely in the next two years and wouldn't necessarily be an improvement, given low valuations in telecoms and media.
Some investors hope Bollore, known for profitable raids on ad agency Havas and car parts maker Vallourec , could push change at Vivendi.
Fourtou said recently he would be happy to see Bollore join Vivendi's board, and the two have known each other for years.
A source close to Bollore said the tycoon had been buying Vivendi shares and would hold roughly 5 percent once he was paid in shares for selling two TV channels to Vivendi.
"Bollore has made the same calculation as many investors: there is more value in Vivendi than its share price reflects," said Gilles Guibout, portfolio manager at AXA Investment Management.
"Once he is Vivendi's leading shareholder, his presence will only put more pressure on management and the board to improve the situation."
A person who works with Bollore said the industrialist would not invest a billion euros in Vivendi without having a view on what the company should do on structure and disposals.
His interest in Vivendi is not only financial. His adult children like the media business and he hopes to pass on the family empire to them.
In any case, the person who works with Bollore downplayed the idea that he might try to force out Vivendi's management.
"He is never brutal. But he is never passive either. He must have a plan up his sleeve," said the person.