- Vivendi has been an amazing stock performer in the last 2 years, thanks to massive disposals of $35bn.
- But there is less cash return to shareholders than expected ($7bn).
- There is no clear, value-added M&A strategy to be followed.
- Vivendi's key assets are unattractive today.
- The company is fairly valued, with more downside risk (expensive M&A) than upside.
Vivendi (VIVHY) has been an amazing stock performer for the last two years with a +70% increase in absolute terms in the last two years. The reason for that is a very dense news flow of asset disposals: the French media / telecom group has nearly disposed all its telecom business (Maroc Telecom, Activision Blizzard, more a video game company though, and SFR) cashing in around € 25bn ($ 35bn)!
What is Vivendi today?
Vivendi today claims to be a pure media company, with 3 key assets: Canal+ (premium pay TV, mainly in France), Universal Music Group, and GVT (a Brazilian telecom / pay TV business… not a pure media business) and some remaining minority stakes (20% in the newly merged group SFR-Numericable, 10% in Activision Blizzard, etc.). And last but not least, a great pile of cash: net cash by end 2014 should be around € 6-7bn ($ 9bn).
Canal+ is a French premium pay TV (about € 40 / month, i.e. $ 55) with a strong positioning on sports and high-quality series/films. Two big threats / weaknesses of C+: the brand is very French, and scalability abroad is limited. Its positioning on films/series is threatened by Netflix (NFLX) arrival in France (far cheaper) and by BeInSport in sports. Be In Sport is a deep-pocket, part of Al-Jazeera group, that has already taken a big chunk of C+ sports broadcasting rights (just in soccer: Bundesliga, Spanish Liga, part of the French League and part of the Champions League…)
UMG is a high-quality asset in music… but would you bet on music today?
At last, GVT may be a quality asset in key market, Brazil, but synergies with C+ or UMG is hard to see.
Who is the management?
After the disposals, a new management is taking the reins of the group: V. Bolloré, a well-known French, media tycoon as chairman and A. de Puyfontaine, 50, as CEO, with a strong experience in press magazine and the last few years at the US group Hearst.
What to do with this cash?
Some extra-cash will be returned to shareholders but not as much as one could have expected: € 5bn ($ 7bn), of which € 1.3bn ($ 1.8bn) this June and € 3.5bn ($ 4.2bn) not before Q2 2015 (via share buyback or special dividend)!
With the additional cash and some debt lever (targeted rating BBB), Vivendi intends to build a worldwide media group around the existing assets… for those who remember, it was the targeted 'dream' of one former CEO, JM Messier in the 2000s, when he tried to transform a utilities company (Générale des Eaux, which became Vivendi Universal, after the acquisition of Universal and the spin-off of Vivendi Environnement, now Veolia) into a media group, ending in huge turmoil. We calculate that after the cash return to shareholders, Vivendi will have around € 3-4bn ($ 5bn) for acquisitions.
Is there a M&A, value-added strategy for Vivendi?
Bolloré / Puyfontaine will pursue a strategy of M&A to build up a worldwide media group, exactly what Messier tried to achieve ten years back. But the fire power of Vivendi, of about € 3-4bn ($ 5bn) looks very limited… New tech / media assets are quite expensive, with Google (GOOG), Apple (AAPL), Amazon (AMZN) & co looking at them and even 'old' media assets are of interest for some new tycoons... At last, with the profile of the new management and the importance of the US market in the media world, Vivendi would probably look after an acquisition in the US where competition is already fierce.
The new strategy may well end up to nothing really interesting… at best. Or, at worst, Bolloré will follow the path of the talented Messier (funny enough, Messier is today a well-regarded M&A advisor) ten years later and the outcome would not be better.
We feel at current share price, Vivendi is fairly valued, with higher downside risk than upside risk. We would then recommend to take profit.
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