Fitch, confirming its BBB rating — the second-lowest investment grade — and a stable outlook, said in a statement today the rating “would come under pressure” if there was no clear expectation of the Paris-based company’s ratio of adjusted net debt to earnings staying below 2.5 times in the “medium” term. The ratio was 2.3 times at the end of March.
Shareholders want Levy, more than seven years at the helm, to come up with a strategy to revive a stock that is trading near its lowest level in nine years. Vivendi failed to shed light on its plan after a meeting of top executives last weekend. Levy, 57, told a private gathering of investors in Londonyesterday he would focus on cutting costs at the French wireless unit SFR, people with knowledge of the matter said.
“Vivendi’s rating would come under pressure if there is no sign of deleveraging in 2013,” Fitch said today.
Since April, analysts at Fitch, Standard & Poor’s and Moody’s Investors Service have written notes about Vivendi’s limited debt headroom, citing the Universal MusicGroup division’s acquisition of parts of EMI Group and pressure on earnings at SFR because of increased competition in the French phone market.
London Meeting
Fitch’s report today also cited potential legal damages related to a $956 million verdict this week in a U.S. lawsuit over Vivendi’s 2001 purchase from Liberty Media Corp. (LMCA) of a stake in USA Networks Inc. The French company said it would appeal the ruling.
CEO Levy, who had been scheduled to meet with investors yesterday and give a speech at a media conference organized by JPMorgan Chase & Co. (JPM) in London, spoke instead via video conference from a remote location, according to people with knowledge of the meeting, who asked not to be identified because the event wasn’t public. Levy confirmed Vivendi’s full-year forecasts and reiterated his commitment to the BBB rating by Standard & Poor’s, said a person who attended the gathering.
The cost of insuring Vivendi bonds using credit-default swaps increased as much as 4 basis points, or 2 percent, to 203 basis points today, according to Bloomberg prices. Since the beginning of the year, that cost has risen about 14 percent. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Universal-EMI Deal
Vivendi shares was little changed at 13.42 euros at 10:22 a.m. in Paris. At 17.3 billion euros ($21.6 billion), Vivendi’s market capitalization compares with almost 40 billion euros in total value of its various businesses, not counting 12 billion euros of net debt, according to April estimates by Morgan Stanley analysts. The investment bank values SFR alone at 12.9 billion euros, and Brazilian phone unit GVT at 5.2 billion euros.
Vivendi also owns Universal Music, a phone company in Morocco and a stake in Activision Blizzard Inc. (ATVI)
European regulators have a Sept. 6 deadline to rule on a bid by Universal Music to acquire EMI’s recorded-music business, which they have said would create a company “almost twice the size of the next largest player” inEurope. Universal may not be sufficiently constrained by smaller competitors, customers’ buying power or illegal music downloads, the EU said when it opened an in-depth probe in March.
Levy is poised to detail plans to SFR unions next week about how he will cut operating expenses by about 350 million euros in 2013, on top of the 450 million euros budgeted for this year, people with knowledge of the matter said.
‘When Appropriate’
Jean-Louis Erneux, a spokesman for Paris-based Vivendi, declined to comment, as did Patrick Burton, a spokesman for JPMorgan in London.
Shareholders had expected details of Vivendi’s strategy after the annual gathering of top executives last weekend. Vivendi said June 25 it would communicate its plans “as and when appropriate”.
As SFR fights back competition from Iliad SA (ILD), the discounter that began selling wireless packages in January, the Vivendi unit is looking for ways to stop customers from leaving. Levy said last month that “strategic vision” for the division will come from Michel Combes, the Vodafone Group Plc (VOD) executive who will lead SFR starting on Aug. 1.
Telecom Lessons
Levy has also been working on plans to reduce costs at SFR, although disagreements with the phone unit’s executives on how to go about reducing spending have slowed the process, people with knowledge of the matter said.
French companies must inform labor unions about plans to reorganize, including staff moves or job cuts, which often lead to protracted negotiations between management and employees.
Firings in the telecommunications industry have proved especially complicated. France Telecom SA (FTE), SFR’s main competitor and the country’s biggest phone operator, was rocked two years ago by a streak of employee suicides which unions blamed on stress caused by a reorganization aimed at making the company more competitive.
To contact the reporter on this story: Marie Mawad in Paris atmmawad1@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong atkwong11@bloomberg.net
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