UPDATE: Vivendi Shares Fall On Worries Group Overpaid For GVT
(Adds detail, comment from Telefonica, analyst.)
By Ruth Bender
Of DOW JONES NEWSWIRES
PARIS -(Dow Jones)- Shares in French media-to-telecommunications conglomerate
Vivendi SA (VIV.FR) fell Monday amid concerns that the group may have overpaid
for Brazilian telecoms operator GVT (GVTT3.BR), breaking with its reputation for
strong financial discipline.
AT 1425 GMT, shares were trading down 2.9% to EUR19.23, underperforming a 0.8%
rise in the French CAC-40 index. Vivendi surprised the market late Friday as it
trumped an offer by Spain's Telefonica SA (TEF) and secured a majority stake in
GVT, underscoring its desire to expand in fast-growing economies.
Analysts, who had expected Vivendi to drop the deal, were disappointed with
management's change in stance.
"The group will have an awful lot of difficulty convincing investors of the
financial rationality of the deal," Natixis analyst Richard Houbron said in a
research note after downgrading the stock to add from buy.
"We had given high marks to management for its discipline in the past year,
avoiding overpaying for assets in Spain or Africa. It now looks like even this
discipline has been set aside," Bernstein Research said in a research note.
Bernstein rates Vivendi market-perform.
Vivendi on Friday said it had bought 37.9% of GVT and had irrevocable options
to buy another 19.6% of the broadband and fixed-line operator, which has around
2.6 million clients across Brazil's center-west, southern and northern regions.
The Paris-based owner of Universal Music group and Activision Blizzard Inc. (
ATVI) also said it will be launching a tender offer for 100% of the Brazilian
firm at 56 Brazilian reals per share, which values GVT at about EUR2.8 billion.
According to Oddo analyst Bruno Hareng, Vivendi's offer values GVT at 9 times
Enterprise value/earnings before interest, tax, depreciation and amortization
for 2010, compared to around 4.5-5 times EV/Ebitda for other local operators,
adding however that GVT generates far greater growth than its listed peer group,
which justifies a premium.
"This is the first non-core asset [Vivendi] has been willing to be so
aggressive over and although Brazilian fixed line is underpenetrated and should
see strong growth, the returns at this valuation could be poor," Citigroup said.
The bank has a buy rating on Vivendi.
"Our offer is totally in line with Vivendi's strategy to invest in high-growth
markets. GVT has annual growth of 30%," a Vivendi spokesman said.
A spokeswoman for Telefonica, which could have benefitted from important
synergies with GVT, said the company's BRL50.50 offer was the highest it could
make, including synergies, without overbidding.
In light of the addition cash Vivendi needs for GVT, some analysts believe the
group now has to sell its 20% stake in television and movie company NBC
Universal, a move it can announce in an annual three-week window that started on
Sunday.
NBCU's parent, General Electric Co. (GE) and Comcast Corp. (CMCSA) are
believed to be finalizing details for a deal to merge Comcast's cable networks
with NBCU, which they have agreed to value at around $30 billion, meaning
Vivendi could get around $6 billion for its stake. That deal depends on Vivendi
selling its stake.
"Both for the sake of sentiment and to safeguard the dividend, we believe
Vivendi needs to do a deal," Citigroup said, noting that on top of GVT, Vivendi
may need cash to buy out minorities in Canal Plus France, a subsidiary of its
pay-TV unit Canal Plus Group.
-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 54; ruth.bender@
dowjones.com
(Jason Sinclair in Madrid contributed to this article.)
(END) Dow Jones Newswires
11-16-090948ET
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