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Liberté, alacrité, Vivendi

2 March 2015 By Quentin Webb

Patrick Drahi is in a hurry. The telecoms magnate has persuaded fellow French billionaire Vincent Bolloré to sell Vivendi’s residual 20 percent stake in Numericable-SFR for 3.9 billion euros. The deal comes just three months after Numericable, then a Drahi-owned cable group, bought SFR after a hot auction. It foreshadows further consolidation in French telecoms – and possibly more M&A by Vivendi.

The transaction is structured as half a Numericable-SFR share buyback and half a purchase by Altice, Drahi’s Dutch parent company. The 40 euros-a-share price represents a decent 8.5 times 2015 EBITDA, on Citi analysts’ forecasts. But it is still a 38.5 percent discount to the last close: suggesting Vivendi has forgone roughly 1.5 billion euros. Hence the media conglomerate’s shares swooned on March 2.

Drahi’s rationale is clear. He wants to capitalise on Europe’s new fondness for letting mobile markets consolidate from four to three players and wants to buy Bouygues Telecom from Martin Bouygues’ eponymous conglomerate. That would cost perhaps 8.5 billion euros. With Vivendi off the register, Drahi has fewer stakeholders to convince. And Numericable would keep more synergies from any deal. Barclays analysts predict cost savings with a net present value of 6 billion euros and a market-wide sales boost worth 9 billion euros. Plus, Numericable could now pay in shares, helping bridge value disagreements.

But why is Vivendi, chaired by Bolloré, willing to trade? It can cite cash, certainty, and a quick exit from an illiquid holding that was subject to a lock-up until November 2015. The original SFR agreement provided for a staggered buyout by Drahi, plus a cash earn-out, which would have taken until 2018.

There are three ways to read between the lines. Two aren’t good for Drahi fans. First, Vivendi may see much tougher regulatory hurdles to a Bouygues-Numericable deal than Altice does. Second, perhaps Vivendi thinks Numericable-SFR shares are overheated. That’s defensible after an extraordinary run-up.

The third readout should worry Vivendi investors. Selling out of telecoms and video games means cash should hit 21 billion euros, Bernstein analysts reckon – a far bigger hoard than is earmarked for shareholders. Management vows prudence and focus. But the eagerness to sell now suggests Vivendi could be planning some big-ticket takeovers of its own.



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