Vivendi Universal SA has shattered Vodafone Group Plc’s attempts to gain control of Cegetel SA, and hence France’s second largest mobile phone operator SFR SA, after announcing that it will pay 4bn euros ($4bn) for the 26% Cegetel stake held by BT Group Plc. The move raises its stake to an unassailable 70%.
The news came in a dramatic late afternoon press conference following a Vivendi board meeting in Paris in which CEO Jene-Rene Fourtou recommended bidding for the 26% stake held by BT to allow it to keep control of Cegetel. Although both BT and SBC Communications Inc had agreed to sell their stakes to Vodafone, Vivendi had until December 10 to launch a counter bid, as it had pre-emption rights for the stakes.
Vivendi said it will pay for the purchase through a 1.3bn euro ($1.3bn) bank loan and 2.7bn euros ($2.69bn) in cash, which it received from asset sales and a convertible bond offering.
The Cegetel unit accounts for a third of Vivendi’s operating profit, and Vivendi realistically had to retain its cash cow if it was to dig itself out of the financial mess it found itself in when former CEO Jean-Marie Messier took the group to the edge of default after an ambitious acquisition spree. In a bid to turn the European conglomerate into a full international media giant, Messier racked up massive debts of 19bn euros ($18.95bn).
At the press conference, Fourtou promised that Vivendi would work with Vodafone within Cegetel. I talked to Gent this week and we agreed that now the competition is over we will listen to each other and co-operate (within Cegetel), Fourtou said.
The announcement puts an end (for the time being only), to Vodafone’s attempts to acquire a controlling interest in a mobile network in each of the five largest European markets. Speaking earlier, a Vodafone spokeswoman, Melissa Stimpson put a brave face on the possible Vivendi victory saying Vodafone and Vivendi have been partners before, and there is no reason why this cannot continue in the future.
Vodafone can afford to be a little philosophical about the loss, as it says it is perfectly willing to play a long-term waiting game. In the end, it was not prepared to risk its single-A credit rating by upping its offer to the 8.5bn euro ($8.48bn) that Vivendi was reportedly asking for its 44% Cegetel stake. Vodafone had originally offered Vivendi 6.77bn euros ($6.64bn) for its 44% stake and repeatedly refused to increase its offer.
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. At the same, Vodafone also offered Vivendi 6.77bn euros ($6.64bn) for its 44% stake in Cegetel.
Vivendi refused to accept the offer and began investigating a possible counter bid. In the past three weeks, it has filled its war chest with approximately 5bn euros ($5.07bn) by selling assets, including its publishing businesses. It 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.
There still remain question marks over the long-term stability of Vivendi however. Despite offloading a number of a number of assets and signing a number of credit facilities and loans with banks, there are concerns it has stretched itself too thinly.
Fourtou confirmed at the press conference that Vivendi would have negative free cash flow of 400 million euros ($398m) this year, but positive free cash flow of 400 million next year.