Vivendi strategy: Vivendi has played its ace in Brazil. The French media group appears poised to gain control of Brazilian telecom upstart GVT, paying E2.8 billion to enter the red-hot market. To beat out Telefónica of Spain, it had to raise its original offer by a third. Brazil is an attractive market and Vivendi has telecom experience, but the price still looks high.
The win came as a surprise. Vivendi was the first to approach GVT in September when it announced an agreement with the company’s controlling shareholders and its intention to offer R$42 (about E16) a share. But Spanish operator Telefónica, which already has a presence in the country and an estimated R$1 billion of synergies to squeeze out, seemed to spoil the party when it made the first formal bid of R$48 a share on October 7.
In an effort to secure the deal, Telefónica raised its bid by 5 per cent on November 4. Combined with a provision in Brazilian takeover law that required a bid by any competing party to be at least 5 per cent higher, the minimum Vivendi could offer was a seemingly high R$53 a share. Vivendi did more than that. It paid an average of R$55.5 a share for 57.5 per cent of the shares, and is launching a bid for the rest at R$56 a share.
Adding in some R$230 million, or E89 million, of net debt, this values GVT at a hefty 12 times consensus 2009 Ebitda. Factoring in GVT’s expected 30 per cent growth in earnings next year, the multiple drops to nine times — still more than double the average four times multiple for LatAm telcos, and well above Vivendi’s own multiple of three.
As a new entrant into Brazil, Vivendi offers no real synergies, but it does bring experience with emerging markets. Maroc Telecom, Vivendi's mobile operation in North and West Africa, has been a success for shareholders.
With growth slowing there, the huge consumer market of Brazil looks tempting. And the possible sale of Vivendi’s 20 per cent of NBC Universal could provide an inflow of about $5 billion to fund the deal.
But shareholders still need to be convinced that Brazil will live up to expectations — and the high price Vivendi's paying for entry.