Vivendi turns around but must sell to reduce debt

Vivendi is in a state of flux this week – a new acting chief executive has seen an upsurge in the share price and confidence boosted at the company, but the need to reduce debts could see prime assets pared off to rival concerns.
Investors were cautious after Aventis deputy Jean-Rene Fourtou replacemed Jean-Marie Messier on Wednesday but the shareprice quickly snowballed into a 15% rise on Thursday morning. The market endorsement of the move, turned around a year-long dive in price in what had become know as the 'Messier discount'. In the past year, the Vivendi shareprice had been slashed by about 75%.
However, the company's $20 billion debt burden is a clear indication to competitors that Vivendi must release cash to recapitalise loans, clear debts and reduce interest payments. And that knowledge will strengthen the hand of potential buyers.
One analyst from M&G Investment Management, Susan Smith, said: "The company is going to be broken up. The assets are worth something, although if you're a distressed seller you're bound to get a lower price."
In the meantime, Mr Fourtou has entered into negotiations with banks to resolve a "short-term liquidity issue" which should ensure that the company has operating cash to go forward and so protect money owed from an insolvency filing. Reuters has reported that Vivendi will need for €2-€3 billion to go forward.
Also, well-placed analysts believe that any reluctance by the banks to provide support in the past would have been motivated by the desire to see Messier removed, and so that support should return. The company have stressed that insolvency was not an issue in the immediate future as the "value of the group’s broad and diversified assets by far exceed that of its debt".
Expanding on this, Vivendi said in a statement that it had €1.2 billion of cash and €1.6 billion in unused credit lines of which at least €600 million can be used for general corporate purposes.
"Payments totalling approximately €1.8 billion remain due by the end of July. These will be financed from resources totalling approximately €2.4 billion comprising cash and draw-downs on existing credit facilities," the statement concluded.
Vodafone, Lagardere and News Corp could all take advantage of Vivendi's distressed seller status, and Bloomberg have reported that stakes in Cegetel and also Canal Plus – with a collective market price of over €15 billion – could be sold to leverage more cash.
However, existing deals such as BSkyB's takeover of Italian pay-TV broadcaster Telepiu could be affected, and the FT have reported that the original €1.5 billion offer could be slashed by a third.
Vivendi Universal, www.vivendiuniversal.com
(GMcG)