Bloomberg News

Vivendi’s Levy Takes Charge of SFR After Market Value Slumps

March 27, 2012

Pedestrians pass a SFR store in Paris. Photographer: Balint Porneczi/Bloomberg

Pedestrians pass a SFR store in Paris. Photographer: Balint Porneczi/Bloomberg

Vivendi SA (VIV) Chief Executive Officer Jean-Bernard Levy will have to show how he can stop customer defections to discounter Iliad SA (ILD) as he takes over managing SFR almost a year after signing off on the 7.95 billion-euro ($10.6 billion) buyout of the French telecommunications unit.

Frank Esser, the 53-year-old SFR CEO of more than 11 years, will step down immediately while Levy, 57, will assume additional responsibilities of running the division, Vivendi said yesterday. The Paris-based company declined to say whether Levy will run SFR on a temporary or permanent basis.

Vivendi’s market capitalization has shrunk by more than 30 percent since it agreed in April last year to buy Vodafone Group Plc (VOD)’s 44 percent stake in SFR. At 17.5 billion euros as of yesterday’s close, Vivendi, which also owns the world’s biggest music and video-game companies, is worth less than the 18 billion euros it valued the SFR unit alone a year ago.

“Levy made his bet on SFR and now they’ve handed it over to him to turn the situation around,” said Conor O’Shea, an analyst at Kepler Capital Markets, who recommends holding the stock and projects it will reach 14.70 euros. “In hindsight it looks like Vivendi could have paid much less for SFR had it waited a year.”

Cost Cuts

Vivendi added 9.5 cents, or 0.7 percent, to 14.12 euros at 9:37 a.m. in Paris. The stock is down 17 percent this year.

Levy takes on the additional role as Vivendi pledges to take a break from making any big acquisitions to focus on reducing debt. His predecessor, Jean-Marie Messier, went on a $77 billion acquisition binge to transform a water utility into a global media giant. Since taking over, Levy has dismantled Messier’s empire and expanded in new directions, making selective purchases, including Brazilian phone company GVT Holding (GVTT3) SA in 2009, to drive growth.

As SFR’s new CEO, Levy will have to come up with a response to Iliad. Pierre Trotot, the 58-year-old senior executive vice president of SFR, has been leading plans to restructure the unit and cut costs, one person familiar with the matter has said.

“What the market really wants is to understand what SFR’s strategy is going to be in France and what measures management is going to take, namely to adjust costs,” said Stephane Beyazian, an analyst at Raymond James (RJF:US) Euro Equities, whose rating points to Vivendi shares performing in line with the market to reach 17 euros.

Customer Losses

SFR lost 208,000 subscribers as of March 1, less than two months after competitor Iliad, founded by French entrepreneur Xavier Niel, started selling mobile-phone packages at a discounted price. Iliad has captured as many as 2 million French mobile customers according to regulator Arcep.

The new competition has prompted Vivendi to forecast an earnings slump until 2013. The company said it will have to adjust its costs structure to offset a projected decline in earnings before interest, taxes, depreciation and amortization of as much as 570 million euros at SFR in 2012.

To contact the reporter on this story: Marie Mawad in Paris at

To contact the editor responsible for this story: Kenneth Wong at

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