Exclusive: Vivendi mulls sale of Brazil unit GVT - sources

LONDON/PARIS Thu Jul 19, 2012 7:51pm BST

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LONDON/PARIS (Reuters) - Vivendi is considering selling its Brazilian telecom unit GVT, sources familiar with the matter said, in a sale that could help its battered shares regain lost ground.

A sale of GVT -- a cherished jewel in Vivendi's crown -- could be worth up to 8.5 billion euros ($10.42 billion) and comes after the French group's exploratory talks to offload video games unit Activision Blizzard found few takers at the price it sought, the sources said.

"A sale of GVT is no longer taboo and is now being considered internally," one of the sources said.

Although no bankers have yet been hired to sound out possible buyers of GVT, the board's thinking has evolved recently from seeing the Brazilian broadband provider as a must-keep asset to one that it would consider selling at the right price.

Vivendi, Europe's largest telecoms and entertainment group, is reviewing its structure to reverse a sustained slump in its share price, and investment banks are pitching ideas to sell units or to break up the business up completely.

The company, with a market value of 20.5 billion euros, is led by 72-year-old Chairman Jean-Rene Fourtou after long-time Chief Executive Jean-Bernard Levy left in June after a disagreement with the board over how to restructure the group.

Fourtou now faces pressure from ratings agencies concerned about Vivendi's 14 billion euros of debt and high shareholder expectations for restructuring to unlock value.

Working for Vivendi, Goldman Sachs and Barclays made the rounds in recent weeks to find bidders for its 60 percent stake in Activision.

Initially, Vivendi was hoping to get a roughly 25 percent premium over the $8.3 billion market value of the Activision stake and preferred to be paid in cash, the sources said.

China's Tencent, U.S. media giant Time Warner and tech heavyweights Microsoft, Apple and Facebook were all sounded out, and none met Vivendi's expectations, the sources said. Vivendi later said that it would consider a lower premium of roughly 12 percent, one source said.

"Vivendi will now think about its options on Activision and take a decision in the coming months," said a source close to the talks.

GROWTH ENGINES

GVT and Activision have been the major motors of Vivendi's growth in recent years, bringing in an increase of 438 million euros in operating profit last year, which largely offset lower profit at French telecom operator SFR and Maroc Telecom.

Vivendi has now turned to GVT as a candidate for disposal, as it seeks to reduce telecoms holdings that Fourtou sees as too risky and too capital-intensive, said two sources familiar with the company's strategy.

Vivendi bought GVT in 2009 for $2.9 billion, beating out Spain's Telefonica, as part of Levy's strategy to expand in emerging markets. Shareholders initially criticized the deal's high price but eventually grew to appreciate GVT once it started to drive Vivendi's earnings growth.

GVT, an alternative provider of fixed telephone, broadband, and TV services in 120 Brazilian cities, is likely to attract interest from larger telecoms companies.

The company has been investing heavily to build its high-speed fiber broadband network to take advantage of historically weak Internet services in Brazil's booming economy. Vivendi is bankrolling 1 billion euros of capital expenditure for GVT this year because it doesn't generate enough cash to finance the expansion.

Potential bidders could include Telefonica and Oi, both fixed and mobile players in Brazil, as well as Telecom Italia via its TIM Brasil unit.

Carlos Slim's America Movil, which is a mobile and cable operator in Brazil, could also be interested, though one banking source said that such an acquisition might pose regulatory concerns.

"Given the potential in broadband (in Brazil), there is a lot of long-term value for these guys," said one telecoms sector banker.

A spokeswoman for GVT declined to comment. Activision could not be immediately reached for comment.

A Vivendi spokesman said: "Vivendi never comments on unfounded rumors on its different businesses and is not going to start now."

ACTIVISION TALKS

In addition to looking for a tech or media company to buy Activision, the sources said another option being explored is for Activision itself to buy out Vivendi's 60 percent stake.

The video games company, known for its online game World of Warcraft, has hired JP Morgan and Allen & Co to advise it on the transaction.

Activision executives, including CEO Robert Kotick, are interested in such a deal, but it's not clear they could offer enough of a premium to tempt Vivendi, the sources said. The games company would need to raise some $5 billion in debt to finance the deal or partner with a private equity fund.

Another source said that Vivendi could take interim steps to reassure credit rating agencies concerned about its debt load.

"Vivendi was hoping to get at least a bidder to challenge Activision's management and get a decent premium," said the source.

"But it didn't happen so now they are considering other options to raise cash and maintain the rating in the short term."

Among the options, the person said, are issuing a 500 million euro convertible bond or selling shares of Activision or Maroc Telecom, which are both listed, for about $1 billion, the person added. ($1 = 0.8154 euros)

(Additional reporting by Gwenaelle Barzic in Paris and Guillermo Parra-Bernal in Sao Paulo; Editing by Douwe Miedema, David Goodman, Leslie Adler)

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