Bloomberg News

Vivendi to Focus on SFR Cost Cuts, Levy Tells Investors

June 27, 2012

Vivendi CEO Investor Meeting Said to Focus on SFR Cost Cuts

An advertising poster for SFR is seen at a metro station in Paris. Photographer: Balint Porneczi/Bloomberg

Vivendi SA (VIV) Chief Executive Officer Jean-Bernard Levy told investors he would focus on cutting costs at the French wireless unit SFR, a day after the company said there wasn’t anything to report from a weekend strategy meeting.

The CEO, who had been scheduled to meet with investors yesterday and give a speech at a media conference organized by JPMorgan Chase & Co. (JPM:US) 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.

Levy, more than seven years at the helm of Vivendi, the owner of Universal Music Group, Activision Blizzard Inc. (ATVI:US) and phone operators in France, Morocco and Brazil, is poised to detail plans to SFR unions next week about how he will cut operating expenses by about 350 million euros ($437 million) in 2013, on top of the 450 million euros budgeted for this year, people with knowledge of the matter said.

Jean-Louis Erneux, a spokesman for Paris-based Vivendi, declined to comment, as did Patrick Burton, a spokesman for JPMorgan in London.

Legal Risks

Shares of Vivendi fell 1.1 percent to 13.42 euros on the Paris exchange yesterday, bringing the stock’s decline to 18 percent this year. On June 25, Vivendi lost a $956 million verdict in a U.S. lawsuit over its 2001 purchase from Liberty Media Corp. (LMCA:US) of its stake in USA Networks Inc. The French company said it would appeal the ruling.

The lawsuit could lead to higher-than-expected legal damages, exceeding the 100 million-euro provision Vivendi has made, Fitch Ratings said today in a statement. Fitch rates Vivendi’s debt BBB, the second-lowest investment grade.

“Vivendi’s rating would come under pressure if there is no sign of deleveraging in 2013, the year after the EMI transaction is expected to close, and if there was no clear expectation of medium-term leverage heading back to below 2.5 times” adjusted net debt to earnings before interest, taxes, depreciation and amortization, Fitch said. The measure at the end of the first quarter was about 2.3 times, according to the rating company.

Strategy Meeting

European regulators have a Sept. 6 deadline to rule on a bid by Universal Music to acquire EMI Group’s recorded-music business, which they have said would create a company “almost twice the size of the next largest player” in Europe. 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, 57, is under pressure to revive Vivendi’s stock, which is trading near its lowest level in nine years. Shareholders had expected an annual gathering of top executives last weekend would shed light on plans to its strategy. 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.

Levy has also been working on plans to reduce costs at SFR, although disagreements with SFR’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 telecommunucations 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 reporters on this story: Marie Mawad in Paris at mmawad1@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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