Vivendi has decided to enter into exclusive negotiations with Telefónica for the sale of its Brazilian subsdiary GVT following the submission of an improved €7.45 billion (US$9.8 billion) offer by the Spanish telco yesterday.
Telefónica has offered €4.66 billion in cash and a 12% stake in Telefónica Brasil. Vivendi will have the option to exchange about one third of the latter stake for 5.7% of the share capital and 8.3% of the voting rights of Telecom Italia currently held by Telefónica through the Telco holding vehicle.
The decision is a blow to Telecom Italia, which also submitted a separate €7 billion offer for GVT yesterday, including the offer of a stake in Telecom Italia as part of the deal.
“In the light of the Group’s strategy and in the best interests of its shareholders, the Supervisory Board decided to enter into exclusive negotiations with Telefonica while emphasizing the relevance and quality of the Telecom Italia offer,” said Vivendi.
Vivendi said that Telefónica’s offer was “particularly attractive”, generating a capital gain of more than €3 billion. It also highlighted that the agreement with Telefónica would “allow the development of joint projects in content and media”.
“The Telefónica offer best meets the Group’s strategic and financial objectives. Vivendi begins a new phase in its development to become an integrated industrial group focused on media and content. Its objective is to pursue its development through the organic growth of its subsidiaries and a close collaboration between them, which do not preclude the group from taking minority positions in allied companies to distribute content,” Vivendi said.
Vivendi’s decision to choose Telefónica’s offer comes as the group reports first half earnings in line with expectations, with revenues of €5.55 million, up 1.3% and EBITA of €626 million, up 1.2%. The group had net debt of €7.9 billion at the end of June, down from €17.4 billion in June 2013.
Vivendi said its revenues were impacted to the tune of €259 million by foreign currency movements.
Pay TV unit Canal+ turned in revenues of €2.67 million, up 0.7% at constant exchange rates. The group had 15.1 million subscribers at the end of June, up 940,000 year on year thanks to strong additions in Africa and Vietnam. Subscribers outside France now account for over two in five of the group’s overall base.
Canal+ France was hit by a rise in the VAT rate levied on sales from 7% to 10% in January, with EBITA declining from €430 million to €420 million, but advertising revenues from free-to-air channel D8 and production arm Studiocanal increased significantly.
In Germany, Vivendi made an exceptional provision of €48 million related to its transformation plan for OTT service Watchever, where it is engaged in an effort to reduce costs and open up new revenue streams.
The sale of GVT, together with that of SFR to Altice in France, is likely to wipe out Vivendi’s debt and leave it with a large cash pile. According to HSBC, the group will have cash amounting to €4.6 billion by the end of this year, post the sale of SFR but not including the cash injection from the sale of GVT. The group has already committed to return about €5 billion to shareholders via an exceptional dividend and share buybacks.