* 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 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
"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
"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
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
"Once he is Vivendi's leading shareholder, his presence will
only put more pressure on management and the board to improve
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.