Vodafone Group Plc and Vivendi Universal SA are marshalling their resources as they prepare for a bloody fight over the ownership of French telecom operator Cegetel SA, following reports that Vodafone is considering increasing its offer for Cegetel.
According to the Financial Times, Vodafone and its advisers have had internal discussions about raising its offer for Cegetel, after the recent rise in Vodafone’s share price (up almost 20% since it first approached Vivendi last month) justifies a re-evaluation of other telecom companies, including Cegetel.
The move by Vodafone is almost certainly in response to the news that Vivendi has managed to secure additional loans and has filled its own war chest with approximately 5bn euros ($5.07bn) by selling assets, including its publishing businesses. It is also exited its 149-year-old water business, selling off half of its 4 billion ($4.06bn) euro holding in Vivendi Environnement SA as part of its continuing 16bn euro ($15.9bn) asset-disposal program.
With the sale of its utility subsidiary and the new loans, the Paris, France-based media giant has managed to raise enough cash to launch a credible counter-bid, and the scene is now set for a showdown with Vodafone.
However, in response to the report in the Financial Times, Vodafone has again denied it will raise its offer for Cegetel, as the Newbury, UK-based operator believes the price it offered at the time was a good one. A Vodafone spokesperson reiterated the official position, and said: We have no current intention of raising the offer. I think we’ve made our position very clear on this.
But this has not stopped analysts from speculating that Vodafone could back-track on its pledge and increase its bid, because valuations on mobile operators have risen recently, making Vodafone’s offer to the other Cegetel shareholders less attractive.
Vivendi set up Cegetel in 1997 as a rival to France Telecom SA as the French phone market gradually opened to competition. Cegetel is currently owned by four companies: Vivendi with a 44% stake, BT Group Plc with 26%, and SBC Communications Inc and Vodafone with 15% each.
The battle for control of Cegetel began in mid-October when Vodafone agreed to pay BT 4bn euros ($3.92bn) for its 26% stake, and 2.3bn euros ($2.26bn) for SBC Communications’ 15% share. This would have increased Vodafone’s holding in the French telecoms operator to 56% and given it control of Cegetel’s prize jewel, France’s second largest mobile phone operator, SFR SA. If Vodafone does manage to gain control of Cegetel, it will then control a mobile network in each of the five largest European markets.
At the same, Vodafone also offered Vivendi 6.77bn euro ($6.64bn) for its 44% stake in Cegetel, which would have gone a long way to reduce Vivendi’s massive 19bn euro ($18.64bn) debt. Investors and the market were in favor of accepting Vodafone’s offer, but Vivendi’s new CEO, Jene-Rene Fourtou, repeatedly rejected the offer, citing it as too low.
Vivendi has pre-emption rights to bid for the stakes held by BT and SBC, and Fourtou has until December 10 decide whether to launch the counter bid and trigger the bidding war. According to the Financial Times, Fourtou is currently preparing a presentation to the Vivendi board, in which he will urge it to pay the $4bn to BT Group to secure overall control of Cegetel, which Fourtou believes is a great asset with a low valuation. The board is set to vote next week.
An insider is quoted as saying that Vivendi’s preferred long-term strategy would be to build a telecom player to take part in the final round of consolidation in the European wireless sector. This may be borne out by the news in the German newspaper Handelsblatt, which reported that billionaire oilman, Marvin Davis, may raise his offer for the media giant’s US entertainment assets. Last week, Vivendi rejected a $15bn offer from Davis for the assets, which include the film studio, Universal Studios.
France only has three mobile phone operators, and is generally considered to be the least competitive mobile market in Europe. According to French regulator ART and Global Mobile, as of June 30, Orange was the market leader with a 49% market share, followed by SFR with 34.4%, and Bouygues Telecom SA with 16%. Whatever happens, Vivendi’s board meeting next week will be pivotal.