Vivendi SA (VIV) Chief Executive Officer Jean-Bernard Levy came under fire from shareholders asking for plans to tackle the company’s low valuation relative to its businesses as the stock trades at a nine-year low.
With his 7.95 billion-euro ($10.4 billion) buyout of wireless venture SFR from Vodafone Group Plc (VOD), Levy set out a year ago to erase a discount on Vivendi shares that’s typical of holding companies with stakes in multiple units. The stock has dropped 39 percent since the deal, with SFR’s profit eroded by Iliad SA (ILD)’s cheaper mobile-phone packages.
“You got the timing all wrong when you bought SFR and you’ve got no headroom left to do more deals,” Louis Bulidon, a shareholder, said at Vivendi’s annual meeting in Paris today. “You’re asking us to sit and wait for the earnings slump to subside in 2014, but what exactly are your plans?”
Levy and supervisory board Chairman Jean-Rene Fourtou faced calls to change management and invite new members to the board, such as Vincent Bollore (BOL), who owns 1.09 percent of the company and is due to finalize the sale of his television assets to Vivendi in exchange for 22.4 million shares. Minority shareholders also asked for a review of assets and the company’s conglomerate structure ahead of the meeting.
Levy cleaned up predecessor Jean-Marie Messier’s acquisition binge and added Brazilian phone company GVT and video-game maker Activision Blizzard Inc. (ATVI:US) to boost growth. Vivendi’s adjusted net income was 2.95 billion euros in 2011, compared with a loss of 23.3 billion in 2002. Yet, Paris-based Vivendi’s shares and net debt are little changed from when he took over in August 2002 and the company is the worst performing stock on France’s benchmark CAC 40 Index (CAC) this year.
Vivendi fell 2.7 percent to 12.42 euros at the close of Paris trading today. That brings the decline to 27 percent this year, while the CAC 40 has climbed 0.5 percent.
The company’s market capitalization of 15.5 billion euros is less than the 18 billion euros valuation for SFR alone, based on the price Vivendi paid for Vodafone’s 44 percent stake. The transaction was completed in June.
The owner of Universal Music Group and the Canal Plus pay- TV operator will continue to be worth less than the sum of its businesses because of its conglomerate structure, analysts say.
Barclays Capital’s Julien Roch assumes a 10 percent discount, while analysts at Bank of America Merrill Lynch and Raymond James & Associates put the discount at 15 percent. After SFR, Maroc Telecom (IAM) is the second most valuable business, with Vivendi’s 53 percent stake worth 5.9 billion euros, according to Barclays and Raymond James analysts.
“Our conglomerate discount has become gigantic, close to 40 percent,” Fourtou said today. “We will not stay idle, and there are no taboos about how we will tackle this. We will look over our strategy, our perimeter and our image among investors.”
A year ago, Levy said that taking over SFR would enable Vivendi to add more than 600 million euros to adjusted net income each year in 2012 and 2013 and allow the company to increase its dividend. Levy told shareholders today that the SFR deal had contributed 480 million euros to Vivendi’s adjusted result in 2011 and would add another 500 million this year.
Competition from Iliad, which began services as France’s fourth mobile-operator in January, prompted Vivendi to forecast an earnings slump through 2013. Vivendi also changed its dividend policy on March 1, projecting 45 percent to 55 percent of profit as payouts starting next year, compared with more than 50 percent.
“It looks like Levy is under pressure from the board,” said Lionel Heurtin, a fund manager at Ofi Asset Management, which oversees 47.3 billion euros and owns Vivendi shares. “Buying SFR was supposed to bring down the conglomerate discount on the shares, but things got complicated along the way.”
In an address to shareholders from the basement of the Louvre Museum, the CEO focused on emerging markets growth, citing GVT’s pay-TV push in Brazil. Vivendi’s revenue in emerging markets reached 5.5 billion euros in 2011, or 20 percent of total, and has doubled since 2008.
Vivendi’s biggest shareholders, Societe Generale Asset Management, BlackRock Inc. (BLK:US), Caisse des Depots et Consignations and Amundi, which together hold about 23.6 percent of shares according to data compiled by Bloomberg, declined to be interviewed for this story.
Levy is working on a new business plan for SFR, which he may unveil before the end of June, people familiar with the matter said March 29. The executive took over SFR from 11-year veteran CEO Frank Esser last month. An internal document showed that SFR had halted more than 100 projects and that it planned to reduce ad spending and slow store openings as it explores further cost cuts.
Vivendi also faces scrutiny from regulators in the coming months. Universal Music’s November purchase of EMI Group (EMIS)’s recorded music unit for $1.9 billion is being investigated by the U.S. Federal Trade Commission and the European Union. The latter last month extended its review to Sept. 6.
France’s antitrust authority said this week that Canal Plus’s purchase of Bollore Group’s television assets to extend into free television raises “serious doubts” over competition.
Levy got a raise of about 10 percent in 2011 and received 1 million euros in fixed salary. Including variable compensation and stock options, his pay amounted to 4.46 million euros last year. The supervisory board has decided to keep Levy’s fixed and variable salary in 2012 unchanged, and his stock options will be cut by 5 percent. Shareholders, who did not have a say over his remuneration today, criticized the CEO for not aligning his salary to the share’s performance.
“We believe CEOs should be rewarded when shareholders have also made some money,” said Nathalia Ponkratova of Proxinvest, a consulting firm which advises institutional investors including some of Vivendi’s top five shareholders, among which France’s state fund Caisse des Depots et Consignations and Amundi.
“Levy’s fixed salary has gone up regularly,” Ponkratova said. “We’d certainly like to know why.”
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