(Bloomberg) -- French billionaire Vincent Bolloré’s project to split Vivendi SE into four aims to boost the firm’s value. It hasn’t so far, with shares spiraling to the lowest level in a year ahead of a crucial vote on the breakup.
Vivendi shares have tumbled 16% from an October peak, erasing all the gains since the French conglomerate announced the potential split in late 2023. Shares slid for 16 of the last 19 sessions through Monday’s close, as investors question whether the long-awaited split will actually alleviate the so-called conglomerate discount.
Against rising investor concern over governance and financial performance, Chairman Yannick Bolloré, Vincent’s son, took the stage at two capital markets day events in London last week to defend the spinoff proposals.
“This split project is the best answer to offset the discount of conglomerate,” he told investors and analysts on Nov. 19. “And let me be clear, there is no other option.”
Vivendi shareholders — of which Bolloré SE is the biggest with its holding of about 29% — are due to vote next month on whether to separately list pay-TV arm Canal+, advertising agency Havas and publisher Louis Hachette Group. The remaining Vivendi firm would stay listed in France. If all the measures succeed, then holders would get one share of each new stock for every share they own of Vivendi.
The plan will simplify the company’s structure and, in theory, should help narrow the stock’s discount versus the value of its assets. But the initial excitement over the proposal to fix Vivendi’s sharp discount has faded.
“The question for investors is whether the perpetual Vivendi discount stays the same and only the name will change,” said Emmanuel Valavanis, an equity sales specialist at Forte Securities. “Now we have a Bolloré discount for investors to contend with.”
The lamented conglomerate discount refers to companies that compile a variety of businesses under one umbrella, with investors valuing the whole at a lower price than they would ascribe to the individual parts. The stock’s tumble has deepened the discount to a sum-of-the-parts valuation, recently taking it to about 40%, according to calculations by Bloomberg. The French conglomerate trades below its book value, while the European media sector trades at a price-to-book ratio above three.
An estimate from an Institutional Shareholder Services report suggests Vivendi’s split could ultimately unlock about €3 billion ($3.1 billion) of value, compared to the current market capitalization for the company of about €9.2 billion.
‘Valid Points’
Two activist investors proposed voting against the spinoff project next month. Paris-based Phitrust said that the proposal “does not provide any certainty as to the valuation of the future entity.” Its compatriot CIAM argued in a slide deck that the spinoff “is not in the interest of minority shareholders.”
For some, governance is a key worry. If the French-domiciled Canal+ gets listed in London as planned, Bolloré SE could increase its ownership without buying out the asset at a premium, analysts have noted.
“What’s clear is that the split plan has put the governance of the group under the spotlight again,” said Pierre-Yves Gauthier, president of AlphaValue. “Minority shareholders are raising some valid points.”
Yannick Bolloré sought to rebuff such concern at the Canal+ Capital Markets Day on Nov. 18, telling an investment audience that “all the shareholders will have the same rights, whether it is the Bolloré group or any other shareholders.”
A weaker growth outlook is another concern. Havas projected a 2% organic growth in 2025, a rate expected to trail rivals including Publicis Groupe and Omnicom Group Inc. Worries over potential US curbs on drug commercials on TV add another layer of uncertainty for the ad agency, which generated almost one-third of last year’s sales from health care and wellness sector clients.
The Canal+ arm, meanwhile, forecast a drop in overall sales next year, hit by an end to the popular C8 channel in France. The firm guided for its revenue to grow “moderately” in the medium term. It’s in the midst of a roughly $3 billion bid to buy MultiChoice Group, an asset that the TV firm said is central to its growth strategy, complicated by a South African rule that limits foreign ownership.
Bolloré SE didn’t respond to calls and emails seeking comment, while Vivendi declined to comment.
Index Trackers
Furthermore, if Vivendi’s subsidiaries were to get listed separately, their shares may come under pressure from index-tracking funds. Such investors own roughly 100 million Vivendi shares — or 15% of the free float, according to JPMorgan analysts. Like other shareholders, index funds would receive stock in the new firms after the split, but they may have to sell if the spinoff company isn’t included in the gauge they track.
All eyes are now on Vivendi’s general shareholders’ meeting on Dec. 9, which will decide the fate of the spinoff project. Both Canal+ and Louis Hachette need a two-thirds backing for their listings to go ahead, while a simple majority of votes is enough to greenlight the Havas separation.
“It could be argued that investors should vote against the split as it is more advantageous for Bolloré than other investors,” said JPMorgan analyst Daniel Kerven. But with Bolloré and Vivendi employees owning one-third of total voting rights, “it would be difficult to block,” he said.
Shares rose for a second session on Monday, gaining 1.1%.
Vivendi’s proposal won backing from proxy advisory firm Institutional Shareholder Services, which recommended shareholders to vote for the split. It acknowledged that the company’s governance “is far from exemplary,” but said that a rejection of Bolloré’s plan would deprive them of a chance to reduce the valuation discount.
“Rejecting the plan with the hope that Bolloré would be forced to give in to the activist’s demands seems like a stretch of the imagination,” ISS said in a report. The meeting “represents an opportunity to unlock the potential of the different businesses and the value upside, rather than a simple referendum on governance.”
--With assistance from Julien Ponthus.
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