Vivendi to buy Vodafone's stake in SFR for $11.3 bn

Vivendi SA (VIV) agreed to buy Vodafone Group (VOD)’s 44 per cent stake in French mobile-phone operator SFR for ¤7.95 billion ($11.3 billion) to win full control of its largest unit and secure more stable earnings.

The price includes ¤200 million in SFR dividends to be paid to Vodafone, Paris-based Vivendi said late yesterday. SFR and Vodafone will continue their commercial cooperation for the next three years, Vivendi said. Vodafone will use £4 billion ($6.4 billion) of the net proceeds to repurchase its shares, it said in a separate statement.

The pact comes two weeks after AT&T corporation agreed to buy Deutsche Telekom AG (DTE)’s T-Mobile USA unit for $39 billion in the wireless industry’s biggest deal since 2004, boosting share prices of European mobile-phone companies. Vivendi said the SFR deal values the French operator at 6.2 times 2010 earnings before interest, taxes, depreciation and amortisation, compared with typical valuations of about 5.1 times to 5.3 times for mature telecommunications markets according to Bernstein & Co estimates.

“Vodafone has definitely got away with the better side of this deal,” said Morten Singleton, an analyst at Investec Securities in London who recommends buying Vodafone shares. “It is a good deal, especially as there was only one buyer of this asset.”

Dividend Plans
Vodafone rose as much as 3.75 pence, or 2.1 per cent, to 182.9 pence, the highest price in four weeks, and traded at 180.8 pence as of 10.51 am in London. The Newbury, England-based company has a market value of £93.2 billion. Vivendi added 14.5 cents, or 0.7 per cent, to ¤20.7 in Paris, giving it a market value of ¤25.6 billion.

Before today, Vodafone had gained 18 per cent over the past 12 months. Vivendi advanced 1.7 per cent in the same period.

The agreement is subject to anti-trust approval and the companies expect the deal to be completed by the end of June.

The transaction “will create a significant increase in Vivendi’s adjusted net income, enabling us to raise the dividend to our shareholders,” Vivendi CEO Jean-Bernard Levy said in the statement.

Vivendi hasn’t made a major external acquisition since late 2009, when it took control of Brazilian phone operator GVT — now the company’s fastest-growing unit — for $4.2 billion. Levy has said Vivendi’s priority is taking full control of existing assets, including SFR and Canal Plus, a pay-TV operator, along with “organic growth,” especially in emerging markets, where acquisition targets are increasingly rare.

France’s Number 2
Vivendi gained cash for an SFR deal in January after receiving a $3.8 billion payment from General Electric for its former 20 per cent stake in NBC Universal entertainment group. The company received a $2 billion transfer in September.

SFR, France’s second-largest mobile-phone operator after France Telecom SA (FTE)’s Orange, accounted for 43 per cent of Vivendi’s total sales last year. SFR had 21.3 million subscribers at the end of 2010 in the country.