Vivendi tools up to battle Vodafone for Cegetel

No credit rating, but no surrender either

ComputerWire: IT Industry Intelligence

French media giant Vivendi Universal SA has dramatically raised the stakes in the ongoing tug of war over French telecoms company Cegetel SA, with a gamble to try to squeeze yet more money out of Vodafone Group Plc,

writes Tom Jowitt.

At the same time it has arguably added some credibility to its own efforts to secure control of Cegetel by announcing the sale of the Houghton Mifflin publishing unit for an "enterprise value" of $1.7bn, and saying that it expected to have sold assets worth $5bn by the end of the year, one quarter ahead of schedule.

Earlier this week, Vivendi's board rejected Vodafone's 6.77bn euro ($6.64bn) offer for its 44% Cegetel stake, and Vodafone has in turn confirmed that its offer, with its October 30 deadline, has now expired. The rejection has left the Paris, France-based company with precious little room for maneuver regarding its own liquidity.

Most analysts and financial institutions had hoped that Vivendi would see sense and take the money and run. Yet Vivendi refused, and said that Vodafone's offer "does not reflect the true value of Cegetel." The statement was ambiguous enough to suggest that if Vodafone were to come back with an improved offer (mooted to be in the $7.6bn region), Vivendi would consider parting with its most profitable business.

However, the rejection is a calculated risk, as all the signs point to the fact that Vodafone is not inclined to up its bid. Indeed, analysts are of the opinion that there is no way Vivendi will get the price it wants.

A spokesperson for Vodafone has confirmed that the Newbury, UK-based company will not be making a higher offer for Vivendi's stake, but its bid for the 26% stake held by BT Group Plc and the 15% holding of SBC Communications Inc, is still on the table.

Both SBC and BT have already accepted Vodafone's offer, but Vivendi has "pre-emption" rights that give it until December 10 to raise enough capital to raise a counter-bid for BT's and SBC's stakes. In actual fact, the most important company from Vivendi's point-of-view is BT Group, whose 26% Cegetel stake will give it the controlling stake it needs to thwart Vodafone's attempts to gain control of France's second largest mobile phone operator, SFR SA.

Vivendi's chairman Jean-Rene Fourtou has reportedly told union representatives that he wants to make a pre-emptive bid for BT's 26% stake in Cegetel, and is giving himself two weeks to do so. Elisa Perrot of the CGT union told Reuters that Fourtou had said the drive to acquire BT's stake and win control of Cegetel had a two in three chance of succeeding.

With no money of its own, and banks seemingly reluctant to lend it any more money, Vivendi's only option is to sell off assets in order to raise enough cash for a counter offer. Recent asset sales, namely parts of its publishing business, have proved to be financially disappointing. The sale of Houghton Mifflin may make Vivendi's efforts to bid against Vodafone seem a little more credible.

This is the second time that Vivendi has rejected a Vodafone offer for its Cegetel stake. In September, it rejected an offer of between 4.1bn euros ($4.02bn) and 4.4bn euros ($4.32bn), depending on Vodafone's share price at the time.

Vivendi set up Cegetel in 1997 as a rival to France Telecom SA as the French phone market gradually opened to competition. Cegetel is currently owned by four companies: Vivendi, which has a 44% stake, BT Group with 26%, and SBC and Vodafone with 15% each.

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