UPDATE 5-Vivendi kicks off wider revamp with Maroc sale deal

Tue Jul 23, 2013 3:56pm EDT

* In talks with Moroccan consortium on investment

* Hopes to complete talks by year-end

* Deal represents new growth push by Etisalat

* Vivendi shares up 3.6 percent

* Maroc Telecom shares fall 9.4 percent

By Christian Plumb and Dinesh Nair

PARIS/DUBAI, July 23 (Reuters) - Vivendi SA's long-flagged deal to sell its controlling stake in Maroc Telecom to Abu Dhabi-based Etisalat is just the first step in the French conglomerate's bet that it can remake itself as a media-focused company.

Vivendi said on Tuesday it had entered into exclusive talks to sell its majority stake in Maroc Telecom to Etisalat for 4.2 billion euros ($5.54 billion) in cash.

The deal, when finalised, would be the first major divestment by Vivendi as part of its year-old strategy to reduce exposure to capital-intensive telecoms to focus more on its media business.

Vivendi's shares closed up 2.4 percent, while Etisalat shares rose 1.27 percent on the Abu Dhabi bourse.

Vivendi had initially hoped to get as much as 5 billion euros for the stake, but the lower price was seen as reasonable given Maroc Telecom's lacklustre performance lately and the fact that talks on the stake sale had dragged on for months.

"Despite the price disappointment (at a discount to the closing price), the deal is good news for the group, allowing it to begin its restructuring and the reduction of its debt ahead of a possible spinoff of SFR," analysts at CM-CIC said in a research note.

The deal also signals a new aggressiveness at Etisalat, which had slowed down its pace of dealmaking after an aggressive shopping spree that saw it spend about $12.6 billion on acquisitions between 2004 and 2009.

Etisalat's Chief Strategy Officer Daniel Ritz said the Maroc stake negotiations do not signal that the company was on a "buying spree".

The company is weighing a bid for Pakistan mobile operator Warid Telecom, sources familiar with the matter told Reuters in June. The UAE telco already owns a stake in Pakistan Telecommunications (PTCL).

"We will consider inorganic opportunities in areas where it gives us a chance to consolidate our existing portfolio," Ritz said, without specifying whether the company was bidding for Warid Telecom.

ACTIVISION, SFR IN FOCUS

The state-owned Abu Dhabi company's bid for Morocco's Maroc Telecom is its first public approach for a foreign company since a $12 billion bid for a controlling stake in Kuwait's Zain failed two years ago.

Since then, the operator has overhauled management by appointing a new chief executive and new heads of finance and strategy with an apparent focus away from overseas forays that failed to add much to the bottom line.

In many of those cases, Etisalat stumbled by not gaining adequate control - still a potential risk with the Maroc Telecom deal. Vivendi said earlier in the day that talks were underway with a consortium of Moroccan investors for a possible investment in Maroc without specifying the details of the potential investors.

Ritz said the talks with Vivendi were for Etisalat to buy a controlling stake in Maroc and that it was not in negotiations with local Moroccan investors.

"Our position is very clear. We are in this deal, if we get a controlling stake. We have heard there is interest among local parties, but there are no negotiations happening now with any parties," he said.

Morocco's state investment vehicle Caisse de Depot et de Gestion (CDG) may team up with Etisalat in the latter's planned purchase of a majority stake in Maroc Telecom, CDG's chief executive said earlier in July.

In results released on Tuesday, Etisalat posted a 6 percent year-on-year profit gain. It had reported declining earnings in nine of the previous 13 quarters, with earnings greatly influenced by foreign assets despite most of its revenue coming from the UAE, where it competes with du.

The Maroc transaction ranks as one of the largest emerging market deals this year. It coincides with an even bigger European telecoms deal, the Dutch telecoms group KPN's 5 billion euro deal to sell its German unit to competitor Telefonica Deutschland.

Vivendi is now widely expected to shift focus to finding ways to pull cash out of its Activision Blizzard U.S. video games unit, which it previously tried, but failed, to sell. Another attempted sale, of Brazilian telecoms unit GVT, was also pulled after offers lagged expectations.

It is also expected to consider a spin off of French telecoms unit SFR, which it could eventually list through an initial public offering.

SFR, which has been struggling with competition from upstart operator Iliad, on Monday said it had entered into talks to share part of its mobile network with Bouygues Telecom.

"These two moves mark the first concrete steps of the restructuring programme - as such, we think they should drive a re-rating as the market sees proof something is actually happening," Liberum analyst Ian Whittaker said in a research note.

The Etisalat offer values Vivendi's 53 percent controlling stake in Maroc Telecom at 92.6 Moroccan dirhams per share. Shares in Maroc Telecom closed down 9.4 percent at 90.20 dirhams On Tuesday.

The deal assigns an enterprise value to Vivendi's stake of 4.5 billion euros, equivalent to 6.2 times its earnings before interest, taxes, depreciation and amortisation.

Vivendi and Etisalat have been negotiating since late April, when the United Arab Emirates-based company submitted a binding offer that was deemed more attractive than a lower, rival bid from Qatar-backed Ooredoo.

The 4.2 billion price includes 300 million euros in 2012 dividends from Maroc Telecom due to be paid to a holding company Etisalat is acquiring but which will instead be paid to Vivendi.

Vivendi is being advised by Credit Agricole and Lazard on the sale and Etisalat by BNP Paribas and Attijariwafabank .

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