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Vodafone in Line for SFR Bid

As Vivendi Struggles

ComputerWire: IT Industry Intelligence

French media and utilities conglomerate Vivendi Universal SA is struggling with an over-extended business after its $27bn acquisition of the bulk of US media company USA Networks Inc last year.

The company now faces angry investors, a massive 17bn euro ($15bn) write-off in its accounts, and a fractured management, split between France and the US. One of the possible solutions to the company's problems could be a sale of its SFR mobile subsidiary.

France's number-two mobile operator has long been a target for UK-based international mobile operator Vodafone Group Plc, which does not currently have any mobile assets in France, the only major European country without a Vodafone-controlled operator. Vodafone is rumored to now be preparing a bid for the company, as a result of Vivendi's problems. Vodafone currently has a 32% stake in SFR, through a direct 20% shareholding and a 15% shareholding in Cegetel SA.

The situation is further complicated by Vodafone and Vivendi's joint venture, the mobile portal Vizzavi. In January 2000, both companies funded Vizavi with 1.6bn euros ($1.4bn) in an attempt to create a pan-European internet and mobile portal, which would use Vodafone's mobile network and Vizavi's content to create the leading content portal. With only 6.5 million customers, Vizzavi is a disappointment to both companies, and Vivendi CEO Jean-Marie Messier has already suggested that he could close down the company's cash burning portals including Scoot, iFrance and Vizavi.

If Vivendi was to pull out of Vizzavi, it would give Vodafone a number of options. Vodafone has already agreed not to buy the shares of the other Cegetel minority shareholders SBC communications Inc and BT Group Plc, even if their stakes come up on the open market. Both have already publicly announced that they want to pull out of the French market, leaving them without a buyer.

If Vivendi pulls out of Vizzavi, this could invalidate this agreement. However, Vodafone is reportedly preparing a bid for Vivendi's entire stake in SFR, which would involve the complicated ownership structure through Cegetel. But as Messier is going to struggle to hold any pieces of the Vivendi empire together, it may make good sense to try and get as much cash as possible from Vodafone, as quickly as he can.

However, with Vodafone, which has previously been immune to many of the problems in the telecoms sector, reporting poor global growth this week, it may be quite difficult for the company to raise the amount needed to take control of SFR. The French operator could be valued at as much as $8bn, which could strain Vodafone's current financial abilities.

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