"Vivendi intends to s upport Telecom Italia over the long term."
Come again?
"Vivendi’s capital investment in a major Italian company fits into the strategy developed by the group."
For anyone following telecoms for the last two years, the proclamations made by Vivendi this week, when it became Telecom Italia’s biggest single shareholder and opened a can of antitrust worms in Brazil, may have sounded a little out of character.
The reason being, Vivendi has spent the last two years trying to get out of telecoms as quickly as possible.
Vivendi’s last major telecoms transaction was in 2011, when it increased its holding in French mobile operator SFR by acquiring Vodafone’s 44% stake for €8 billion, a deal that valued SFR at around €18.1 billion. Almost exactly two years later, Vivendi agreed to sell SFR to Altice, parent of French cableco Numericable, in a deal worth in total around €20.9 billion.
Vivendi was said to be in a hurry to get out of telecoms. Competition was too tough; the margins too pressured; the regulation too tight. Nowhere more keenly was this felt than in its home market France, where Iliad’s launch of Free Mobile in 2012 sparked a fierce price war.
Early signs of Vivendi’s perhaps waning appetite for telecoms began to appear in July 2009 when it backed away from buying Kuwait-based Zain’s African operations. Those assets were eventually acquired by India’s Bharti Airtel. Later that same year Vivendi agreed to a more modest acquisition in the form of Brazilian fixed broadband provider GVT.
By 2013, after a year of competition in France from Free Mobile, Vivendi made clear its plan to divest its telco assets so it could focus on its film, TV, and music businesses. The company owns 100% of film and TV production company Canal+ Group, and 100% of Universal Music Group. Vivendi is also the parent of Vivendi Village, which owns ticketi ng companies, a streaming video provider, and the Olympia concert venue in Paris, among others.
In November 2013, Vivendi edged towards the telco exit when it agreed to sell Maroc Telecom to Etisalat for €4.2 billion.
Then, following its April 2014 deal to sell SFR to Altice, Vivendi prepared to bid farewell to telecoms by agreeing the sale of GVT to Telefonica for €4.66 billion in cash plus a 12% stake in the merged entity, now called Telefonica Brasil.
However, the structure of that last deal has thrust Vivendi well and truly back into the industry, since it came with the option for Vivendi to exchange just over a third of that 12% stake in Telefonica Brasil – 4.5% – for 8.3% of Telecom Italia’s ordinary shares, an option that Vivendi duly exercised.
On Wednesday, Vivendi revealed it also paid €1 billion for an additional 4.76% of Telecom Italia, which together with a 1.9% stake Vivendi acquired in yet another recent and separate transaction, comes to 6.66%.
In total, "Vivendi now owns 14.9% of Telecom Italia’s ordinary shares and has thus replaced Telefonica as the company’s largest shareholder," said Vivendi.
SFR aside, Vivendi’s telco strategy was about acquiring telcos in high-growth markets, and while it may only hold 14.9% of Telecom Italia, like any shareholder it will want a return on that investment. Given the performance of the Italian telco market in recent years, Vivendi may have to wait a while.
In Q1, Telecom Italia’s revenue fell 2.6% on-year to €5.1 billion, EBITDA fell 7.7% to €2 billion, and its net debt stood at €29 billion. It has also just embarked on a €14.5 billion capex plan to upgrade its fixed, mobile, and cloud infrastructure.
Vivendi’s Telecom Italia deal is also likely to set up a showdown with Brazil’s antitrust authorities, since it now owns stakes in Telefonica Brasil, which competes with Telecom Italia’s TIM Brasil.
Former shareholder Te lefonica faced the same problem, and heaped pressure on Telecom Italia to sell TIM Brasil in order to settle the antitrust dispute and shore up its finances.
Sources cited in a Bloomberg report last week claimed that Vivendi chairman Vincent Bollore is also keen for Telecom Italia to exit Brazil.
So far, Telecom Italia has stoutly refused to sell TIM Brasil, with CEO Marco Patuano insisting it is a strategically important asset.
"Consolidation in the Brazilian market has been a topic in the telecom sector for some time," said Rick Mattila, telecoms & industrials analyst at MUFG, in a research note this week.
"Some form of combination between TIM Brasil and [local player] Oi – together with selected asset sales to others – is probably the most realistic consolidation scenario," he added, with the caveat that "speculation has been around for some time without any real developments."
Vivendi may soon have to decide between selling out of Telefonica Brasil or gritting its teeth, digging in its heels and finally forcing a sale of TIM Brasil.
