Vivendi extends reach with €7.75bn buyout of telecoms operator SFR

The French bard, statesman and human rights campaigner Victor Hugo called him Napoleon the Small.

But it is to the man who had the distinction of being France's last king and first president that one of the world's biggest mobile phone businesses owes its existence.

And Vivendi, which began life in 1853, created by Napoleon III's imperial decree as the Compagnie Generale des Eaux to supply water to the citizens of Lyon and later Paris, is about to become bigger.

The company is taking complete control of the French phone and internet operator SFR. The deal to acquire Vodafone's 44 per cent stake in SFR is worth €7.75 billion (Dh40.4bn) and is expected to be completed by June, subject to regulatory approval.

As befits any Napoleonic project, Vivendi's history is marked by great peaks and deep troughs. Despite its size and commercial clout, Vivendi is a slimmed-down version of its former self. The water interests were hived off more than a decade ago and the group is a shadow of the empire that once accounted for 6,000 companies before spiralling out of control and chalking up a loss of Dh121.4bn for 2002, a record for France.

But even in its sleeker form, Vivendi is an ambitious, far-reaching business with interests including television channels, internet games and Lady Gaga CDs.

For the money it is paying Vodafone, it gains outright ownership of SFR and its substantial revenue stream. With more than 21 million subscription-based customers, including some 4.6 million homes taking its high-speed internet services, SFR is France's second-largest telecoms operator behind France Telecom.

But Vivendi's is already the country's largest mobile phone business if its interests elsewhere in Europe, India, South America and Africa are taken into account.

Vodafone's decision to give up its share of the business reflects the British company's strategy of realising assets in mobile phone operations where it does not have majority control. It said nearly half of the proceeds would be returned to shareholders by way of a share buy-back, with the rest going towards easing debt.

Both companies have expressed satisfaction with the outcome of months of negotiations.

"Our board remains committed to realising maximum value from our non-controlled assets," said Vittorio Colao, Vodafone's chief executive.

By returning Dh23.7bn to shareholders, the company was increasing its current buy-back programme to a total of Dh40.3bn, equivalent to more than 7 per cent of Vodafone's current market capitalisation.

Jean-Bernard Levy, the chief executive of Vivendi, said the group was "very pleased" to have completed 100 per cent ownership of SFR.

The acquisition would help management "to focus further on profitable growth and innovation", he added. "I am very confident that this will greatly benefit both the group's industrial development and our millions of subscribers and consumers globally."

The purchase is also in line with the group's objective of driving up cash flow.

Business commentators say Vodafone's sale is intended to reassure its own investors that it is streamlining its assets portfolio. It has also sold minority stakes in China Mobile and in Japanese and Polish providers.

Although this underlines the less acquisitive approach that has replaced Vodafone's previous taste for expansion, the company is not averse to further investment where that gives it control, as demonstrated by the recent decision to spend Dh18.4bn to buy out Essar's share of an Indian telecoms venture.

On top of the selling price, Vodafone will collect just over Dh1bn as a final dividend reflecting revenue for the first half of this year.

Bloomberg News quoted an analyst at Sanford C Bernstein as suggesting that Vivendi was paying too high a price. But there was also positive comment. France may have done away with royalty, but Mr Levy may take encouragement from the online verdict of Corporate Financing Week: "Vivendi Aims to Be King of Convergence."