PARIS Vivendi (VIV.PA) rebuffed talk it might split into its telecoms and media businesses, saying such a move would be unworkable because of its debts, and announced deep cost cuts to cope with cut-throat competition at its French mobile phone arm.
The French group is in the midst of reviewing its strategy and portfolio of businesses in a bid to reverse a slump in its shares, which have halved in value over the last five years.
While the process could lead to the sale of assets such as video games maker Activision Blizzard (ATVI.O) and Brazilian telecoms arm GVT, the departure of the group's previous chief executive two months ago fuelled talk of more radical action, including a dismantling of the company.
"We feel a necessity to move vis a vis our shareholders, but this is not 2002, we don't have to sell anything or do anything immediately," Chief Financial Officer Philippe Capron said on Thursday, referring to Vivendi's brush with bankruptcy a decade ago that triggered a fire sale of assets to cut debt.
He said a separation of the telecoms and media businesses was not feasible because it would create too much uncertainty over how to distribute the group's 14.1 billion euros of debt between the new entities.
"Whatever we do, we will not do anything that doesn't protect the interests of bondholders," he said, adding the group remained dedicated to protecting its credit rating.
Vivendi also said it planned to cut annual operating costs at struggling French mobile phone unit SFR by 500 million euros ($626 million) by the end of 2014.
Long the group's cash cow, SFR has been hammered by a price war launched by new low-cost mobile player Iliad (ILD.PA), which is hitting profits and forcing it to spend to keep clients.
First-half group operating profit fell 12.7 percent because of SFR's problems, as well as accounting rules at Activision that affect how Vivendi books revenue from video games its publishes.
Vivendi shares rose almost 4 percent as investors welcomed the cost cutting plan, as well as the group's promise of a new marketing push for SFR in September.
UBS analysts described the cost cutting a "sizeable" and said it could lead to roughly a 10 percent improvement in consensus earnings per share forecasts for 2014.
But they and other analysts also sounded a note of caution on Vivendi shares, which have rallied 25 percent since April on hopes of a radical shake-up and better returns for shareholder.
"If the break-up scenario is removed, we believe a piece-by-piece asset sale strategy would take time and would be uncertain in terms of asset monetization," said Raymond James analyst Stephane Beyazian.
Vivendi said the cost cutting at SFR, which is now underway, would include some voluntary redundancies, as well as savings in procurement, marketing, and information technology.
Capron added there would be further "variable" cost cuts, but did not provide details.
SFR managed to slow mobile client losses to 53,000 in the second quarter amid the price war touched off by Iliad's 'Free Mobile' service, which offers lower prices and simpler tariffs with two offers at 2 euros ($2.51) or 19.99 euros per month.
First-half sales at SFR fell 5.9 percent to 5.76 billion euros, while earnings before interest, tax, depreciation and amortisation (EBITDA) fell 5 percent to 1.85 billion euros.
"We are suffering from the price reset in the French mobile market," said Capron. "We have to adapt to the new reality."
Vivendi saw overall first-half revenues slip 1.2 percent to 14.1 billion euros, while earnings before interest, tax, and amortisation (EBITA) dropped 12.7 percent to 2.9 billion euros. Analysts had expected sales of 14.04 billion and EBITA of 2.93 billion, according to a Reuters poll of 8 analysts.
Vivendi confirmed its annual profit target this year, as well as SFR's guidance for a 12-15 percent decline in EBITDA.
($1 = 0.7982 euros)
(Reporting by Leila Abboud and Gwenaelle Barzic; Editing by Christian Plumb and Mark Potter)