Epic Guide

Vivendi

By Jon Burgess 2/16/08

Vivendi (VIV; listed on the EPA) is a world leader in entertainment and communications located in France and doing business in the United States and Europe. Vivendi is a holding company for a number of subsidiaries:

Universal Music Group

Vivendi owns 100% of the Universal Music Group, which is the world’s larges record company, selling 25% of the albums world wide. (Vivendi.com)

Canal+ Group

Vivendi owns 100% of the broad casting channel, which is a leader in paid television in France, with over 10 million paid subscriptions. The Canal+ Group is also involved in film production and distribution (Vivendi.com).

SFR
Vivendi owns 56% of SFR, Frances 2nd largest cell phone operator with 18 Million customers (Vivendi.com).

Maroc Telecom
Vivendi owns 53% or Maroc Telecom, the largest telecommunications in Morocco, with services in fixed phone lines and internet access. Maroc Telecom also holds major portions of smaller European telecom companies. (Vivendi.com).

Vivendi Games
Vivendi owns and operates the Vivendi Games division, which includes Blizzard, Sierra, Sierra Online, and Vivendi Games Mobile. Blizzard is a world leader in video games creating World of Warcraft, Diablo, StarCraft, and Warcraft. World of Warcraft is the world largest subscriber based game, with 9 million subscribers. (Vivendi.com). Blizzard and Activision, another video game maker recently announced a merger, giving Vivendi more than 50% control of the new “Activision Blizzard” (Vivendi Shareholder Newsletter).

NBC
Vivendi owns 20% of the United States’ National Broadcasting Corporation (NBC) with General Electric holding the remaining 80%. (Vivendi Key Figures)

Company History

Vivendi has been a holding company for a number of companies in the communication and entertainment industry over the last 20 years, but it had its roots in the last Emperor of France. Vivendi started as “a water company named Compagnie Générale des Eaux (CGE) was created by an Imperial decree of Napoleon III. in 1854” (Wikipedia). For more than 100 years it was primarily a water company, but in the 1980’s the company moved into other natural resources, and in the 1990’s the company began its transitions into the current form of Vivendi. Between the 1980’s and today, it bought and sold a number of holdings, changed names, had mergers, and at the turn of the century it sold off its original water and environmental holdings (Wikipedia).

Since 2000, Vivendi has moved into the entertainment and communications industries, and its stock prices showed its rapid growth during the dot.com bubble and it following crash (Chart 1). In 2001 Vivendi sold of its “Seagram Wine and Spirit” holdings and bought the USA Networks channel. The USA Networks brought together major holdings in Universal Studios and created the Vivendi Entertainment division. By 2003, Vivendi Entertainment was sold to NBC in exchange for 20% ownership (Vivendi.com). In 2002 Vivendi sold off its holdings in Vodaphone, and sold of last 40% holding of Vivendi Environmental (Vivendi.com). In 2003 Vivendi bought controlling ownership of French telecom Cegetel, merging it with their SFR division, making them the 2nd largest telecom in France. In 2005, Blizzard games launched World of Warcraft, which has become the worlds largest subscription based game in the world (Vivendi.com). In 2007, World of Warcraft released an expansion to the game, selling 3.4 million copies in one month. In 2006-2007 Vivendi increased the holdings in Moroc Telecom to become the controlling body (Vivendi.com). In 2007 Vivendi’s Channel+ Group, fused in TPS, to become the largest subscriber based satellite TV in France, with 10 million subscribers (Vivendi.com).

Stock Analysis
Currently Vivendi has a P/E ratio of 11.27, indicating the company has a lower growth potential than many. However, Vivendi has been aggressive in buy other companies, thus their costs to acquire the business is tied into the net profits. Over the last year Vivendi’s stock has been trading between $26.03 and $31.38 (Google Finance). Vivendi has been of a fairly steady run up from a low in August 2002 at $17.40 to low $30.00 at the end of 2007. The high was in January 2002 when the “dot-com” bubble reached its highest point at $63.50 (Chart 1). Vivendi has a market capitalization of $30.86 Billion dollars, which when looking at related companies is second to France Telecom (ADR) at $89.56 Billion market capitalization. Since 2004, Vivendi has increased its net income from 1.31 Billion to 2.27 in 2006. During that same time period, it increased its dividends from $0.60 to $1.20 per share (Vivendi Key Figures 2006). Vivendi has also increased its net margin from 8.4% in 2004 to 13% in 2006 (Vivendi Key Figures 2006).

Recently the stock has taken a downturn from the$30.00s at the end of December 2007 to $25.26 on February 15th. There have been two major issues that have come up in the news causing investors to feel a bit worried about the stock. In early February news broke that a former top executive was accused of insider trading of Vivendi stock. “Edgar Bronfman Jr. faces preliminary charges of insider trading as part of a probe into alleged wrongdoing at French media and telecom group Vivendi Universal” (CNN Money 1).

At the same time Vivendi announced the merger and acquisition of Activision with its Blizzard division and finalization of Neuf Cegetel merger with its SFR division. With the Activision merger, “Citigroup estimates the combined entity could earn as much as US$1.38-billion in 2009, which is more than 15% ahead of guidance” (Ratner). With an up-beat outlook on the merger in the long term, the short term loss to the stock price is due to the large loan Vivendi made to buy Activision. “Vivendi said it has signed a new 3.5 billion euro loan facility underwritten by a pool of banks in anticipation of the funding associated with its acquisitions of Activision (NASDAQ:ATVI) and Neuf Cegetel” (CNN Money 2). The Neuf Telecom merger was announced in May of 2005, “French alternative operators Groupe Cegetel and Neuf Telecom have agreed to merge, creating the second largest carrier in France with annual revenues of more than $3 billion.”(Unknown, French Carriers) and has been completed, except the final round of funding is tied to the $3.5 Billion Euro loan. Vivendi had 4 billion in debt in 2006, which will increase to approximately 7.5 Billion (Vivendi Key Facts 2006). This goes against the yearly revenue of $20 Billion in 2006, and total equity holdings of $21.8 Billion in 2006 (Vivendi Key Facts 2006)

Vivendi’s Universal Music Group has also struggled over the last few quarters as many of the “Music Label” companies have done. With the transition from CDs to a digital music economy, in 2007, “Universal Music Group’s revenue fell 1.7% to 4.87 billion euros ($7.21 billion)” (Wilkerson). The good news it that the company has worked to make a transition to the new digital music economy, “digital sales rose 51%, representing 14% of total revenue for the year.” (Wilkerson). Universal has continued to make respected music, recently gaining 38 Grammy’s from its artists (Vivendi.com).

The Canal+ Group has recently locked up the rights to televise “Football Championship,” professional soccer in English, until 2012, which would parallel American’s watching football on the NFL Network, Fox, or CSB.

Vivendi’s Blizzard group has been building a monster brand in its online multi-player game World of Warcraft over the last 3 years. The game has taken the traditional model of making a one-time purchase and transformed it into a subscription service. Recently the game has hit 10 Million users world wide, with 2.5 Million in the United States. The Revenue from World of Warcraft is $12.50 a person, meaning the company makes a staggering $125 Million a month on fees (Vivendi.com).

Vivendi’s diversification makes it hard to pigeon hole into one industry, so it is hard to compare it to many of its division’s competitors. In the music industry, many record labels are held by other companies, and all of them are struggling to transform into digital companies. Vivendi’s video game holding are going give them the best circulation of video game titles in the world, with 4 of the 5 best selling brands of all time(Vivendi Shareholder Newsletter). Vivendi’s video game holdings are its smallest proportion revenue, but has the highest return on investment at >40 % (Vivendi.com). Both sets of Vivendi Telecom holdings are strong and expected to increase subscriptions as cell phones continue to get cheaper and the numbers sold continue to rise. However, when you look at American telecom giant, ATT, it has a $118 Billion in 2007 revenue(Google Finance), with Vivendi’ SFR only having 8 Billion in 2006 revenues, making it a small player in the world market (Vivendi Key Figures 2006).

Conclusion

In conclusion, Vivendi is a diversified company with a history of buying successful brands and selling off its divisions that are not performing well. In its 150 plus year history, it has proven that it has strong management and solid business practice, and over the last 25 years it has combined these practices with aggressive investment and expansion into communications and entertainment. Buying this stock would give you a solid, balanced investment with great expansion and growth opportunities.

DISCLAIMER - Jon Burgess is NOT an expert, nor it this advise, this is an opinion.

References

Unknown, CNN Money 1(Feb 7, 2008) Ex-Vivendi exec faces insider trading charges. CNNMoney.com

Unknown, CNN Money 2 (Jan 18, 2008) Vivendi agrees 3.5 Billion Euro loan facility for Activision and Neuf Cegetel buys. CNNMoney.com

Google Finance
Vivendi - http://finance.google.com/finance?q=EPA%3AVIV

ATT - http://finance.google.com/finance?q=T&hl=en

Unknown Author (MAY 12, 2005) French Carriers Announce Merger, Light Reading Europe http://www.lightreading.com/document.asp?doc_id=73749

Ratner, Jonathan (Feb 8th, 2008) Combination of Activision and Vivendi seen earning more than US$1.3-billion in 2009. National Post.

Vivendi Corporate Information
Vivendi.com

Vivendi Shareholder Newsletter

http://www.vivendi.com/ir/en/shareholders/Shareholder_Newsletter_december2007.html

Vivendi Key Figures 2006

http://www.vivendi.com/corp/en/files/20070307_2006keyfigures.pdf

Vivendi Partial Key Figures 2007

http://www.vivendi.com/corp/en/group/documents/20070912_5_Volets_Vivendi_GB_1ersem07.pdf

Wilkerson (Jan 30, 2008) Universal Music Group revenue declines 3.1%, Marketwatch

Wikipedia.com – Vivendi

http://en.wikipedia.org/wiki/Vivendi