Description

Summary

Vivendi is a French mass media and entertainment conglomerate with a portfolio of assets that includes Canal+, Havas, Gameloft, Universal Music Group, and Telecom Italia. The company is currently trading at a significant discount to its net asset value, and there remains a possibility that it could be taken private by its largest shareholder, Bollore SA.

Investment thesis

The investment thesis for Vivendi relies on the following:

Undervalued: The company is trading at a significant discount to its net asset value. This is due to a number of factors, including the recent sell-off in the media and entertainment sector, and the uncertainty surrounding the potential takeover by Bollore SA.

Strong assets: Vivendi owns a portfolio of strong assets that are well-positioned to grow in the future. These assets include Canal+, a pay-TV company with operations in France, Poland, Africa, and the Middle East; Havas, a global advertising and marketing services company; Gameloft, a mobile game developer and publisher; Universal Music Group, the world's largest music company; and Telecom Italia, an Italian telecommunications company.

Potential takeover: There is a possibility that Vivendi could be taken private by its largest shareholder, Bollore SA. This would provide shareholders with a significant premium to the current share price.

Shareholder returns: Vivendi has a history of returning capital to shareholders through share buybacks and dividends. This is likely to continue in the future, as the company has a strong cash flow generation.

Company overview & background

Vivendi is a French mass media and entertainment conglomerate headquartered in Paris. It is a major player in the global media and entertainment industry, with a diversified portfolio of businesses that includes television, film, music, publishing, and video games.

Vivendi's television business includes Canal+, a leading pay-TV operator in Europe, and Universal Networks International, a global distributor of premium content. Its film business includes Universal Pictures, one of the world's largest film studios. Its music business includes Universal Music Group, the world's largest music company. Its publishing business includes Editis, one of the largest book publishers in Europe. And its video game business includes Gameloft, a leading mobile game developer.

I suggest reading past write-ups from Bailyb906 (2019), avahaz (2017), Biffins (2014) for further background on Vivendi.

Bollore Group

 I also recommend reading singletrack’s write-up on Bollore (2022) for more detail, especially on the complex ownership structure (see the analysis under Share Count Analysis subheading).

The Bolloré Group is a French conglomerate owned by the Bolloré family. The family controls the company through a complex ownership structure, which gives them a great deal of control over the company's strategy and direction.

The Bolloré Group has gradually been building its stake in Vivendi since 2014, increasing ownership to slightly below 30%. The 30% threshold is a regulatory requirement in France that requires a shareholder to make a mandatory offer to buy all the outstanding shares of a company if they acquire more than 30% of the company's shares. This is designed to protect minority shareholders from being taken over by a hostile bidder.

The ownership structure of the Bolloré Group is complex and can be difficult to understand. The following is a simplified overview of the structure:

·        Bolloré SE is the listed entity that owns 29.7% of Vivendi (approximately 17% of its current enterprise value), 18% of Universal Music Group (approximately 42% of its enterprise value), and logistics, transport, and agriculture assets (approximately 42% of its enterprise value).

·        Bolloré SE is 36% owned by Bolloré SE minorities and 64% owned by Odet, another listed company.

·        Odet is 55% owned by Sofibol and 38% by various holding companies that are owned by Bolloré SE (the listed company).

·        Sofibol is owned by Financière V, which is owned 50% by Omnium Bolloré, which is 50% owned by Bollore Participations SE – the holding company owned by the Bolloré family that sits at the top of the structure.

Understanding the particulars of the Bollore structure is not essential for understanding the Vivendi investment thesis. However, it is important to note that the complex ownership magnifies the Bollore family exposure to value accretive action in the underlying Bollore SE holdings. Bollore has a strong motivation to increase their stake in Vivendi shares at a discount. Bollore would have full control of Vivendi and the opportunity to actively manage its portfolio of assets.

Bollore could seek to create value from Vivendi's assets through a variety of means, including: the sale or merger of assets, such as Havas, Gameloft, Village, or Lagardere's travel retail business, corporate cost savings, the sale of stakes in Vivendi's assets that are currently being valued at a discount to their market value.

Bollore could also exploit the significant discount between Vivendi's SOTP value and its current share price to increase its stake in Vivendi and take a disproportionate share of the fair value. JPM recently estimated that if Bollore were to increase its stake from 30% to 60% at €11.5 per share, 35% premium to the current share price but a 27% discount to fair value), then it would result in a net gain of €1.6 billion for the Bollore Group.

Recent action by Bollore affiliated companies (see below) make the timeline less certain. However, Vivendi downside is likely protected by potential for Bollore’s interest in increasing their economic interest.

Latest updates

Recent Bollore Group share sale – Vivendi's stock price has fallen by ~13% since May 23 after Compagnie de Cornouaille (legal entity linked to the Bollore Group) sold 1.456 million shares on May 16. Vivendi repurchased 3 million shares from May 15 to May 17 to offset the impact of the sale.

Vivendi stated during its FY2022 results that Bolloré Group would cross the 30% ownership threshold in September 2023 if it had not sold any Vivendi shares beforehand; Vivendi has 72.6 million shares to cancel in 2H23-1H24. 37mn shares are expected to be cancelled by September 2023; Bollore owned 29.46% of Vivendi (prior to May 16), would have needed to sell 15.8 million shares in total in order to remain under the 30% threshold.

Bolloré Group has previously stated that it would decide in due course whether to make an offer for Vivendi or sell down some Vivendi shares to remain below the 30% ownership threshold and avoid triggering a mandatory offer.

There is speculation in the market as to why Bollore Group would sell shares now rather than wait until August/September (closer to the share cancellation deadline). By selling now, Bollore has arguably made Vivendi more vulnerable to activist involvement; an activist would only need to spend ~€1.5bn to build a 15% blocking stake. Waiting until August would likely have fueled mandatory take-private expectations, pushing the share price higher ahead of Bollore’s share sale. There are numerous other explanations.

Vivendi buyback program – Vivendi's shareholders on April 24, 2023 approved the reauthorization of the company's share repurchase program, which allows it to repurchase up to 10% of its outstanding shares. The shareholders also approved the cancellation of up to 10% of Vivendi's shares, and the renewal of the OPRA, which allows Vivendi to reduce its share capital by up to 50% through a combination of share repurchases and share cancellations.

Recent operation updates

Most of Vivendi’s operational assets were performing well in FY2022:

·        Canal+ revenues increased by 0.3% on an organic basis in FY22, while EBITA increased to €515 million.

·        Gameloft was stronger than expected on the back of 19.4% organic growth year-over-year.

·        Havas was up 2.3% organically in Q4 on a net basis, with EBITA marginally ahead of consensus.

·        Vivendi repurchased €325 million of shares in FY22 and plans to cancel 42 million of these in 2H23.

·        Management is in "constructive discussions" with the European Commission on the Lagardere deal and expects a decision by the end of May.

·        Vivendi is a "happy shareholder" of UMG and has no immediate plan regarding the UMG stake.

·        Telecom Italia is no longer accounted under the equity method following the resignation of two of Vivendi's representatives from the TI board.

Valuation

The NAV discount is now ~40%, compared to a historical average of 26% since 2016 (and low 30% range since the UMG spin-off). The unlisted stub is trading at c.3x 2024 EV/EBITDA (vs an average of c.4x since the UMG spin).

Key risks

Key risks include value-destructive M&A, lack of clarity/transparency over strategy, strategic missteps, corporate governance concerns, faster change in consumer behavior, greater competition for sports rights, deterioration in the macro environment (lower advertising revenues and lower consumer spending)

Catalysts

Bollore take-private offer – The most likely period for a take-offer would be near-term (early summer 2023) or later in the year after the sales of Bollore’s logistics asset (likely in Q4)

Other catalysts include activist involvement, accretive asset sales, increased pace of buybacks

Catalyst

Bollore take-private offer – The most likely period for a take-offer would be near-term (early summer 2023) or later in the year after the sales of Bollore’s logistics asset (likely in Q4)

Other catalysts include activist involvement, accretive asset sales, increased pace of buybacks