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Vivendi asset disposals to fuel French buyout activity?

The question on many people’s lips is whether Vivendi will reach its EURO10 billion asset disposal target simply through selling its non-core assets? Many believe the group may fall short of meeting its target if it doesn’t also consider the sale of some of its core assets.

First on the sales block is US publishing group Houghton Mifflin, which has already been approached by a number of potential LBO buyers. Houghton Mifflin was bought last year for $2.2 billion, although bankers see private equity buyers paying no more than $1.8bn $1.9 billion, according to EVCJ’s sister publication, International Financing Review. Meanwhile, Vivendi’s 10 per cent stake in US telecoms company EchoStar, which was acquired for $1.5 billion in December 2001, could also be a candidate for divestment and the group is also rumoured to be considering a sale of its Express-Expansion stable of flagship magazines. Express-Expansion owns 16 magazines, among them L’Express, one of France’s leading news magazines, and L’Expansion, a monthly financial affairs magazine. The rumoured sale does not form part of the group’s publicly-announced disposal programme.

The appeal of Vivendi’s saleable assets to private equity houses is debatable, says Adrian Johnson chief executive of Legal & General Ventures who has an in-depth knowledge of the French market. He set up and ran Legal & General Ventures Paris office prior to being appointed CEO of the group. “There are not too many businesses in there that are naturals for private equity buyers. They had already sold a lot of good assets before Messier went on his spending spree,” he says.

Johnson says many of the more lucrative businesses that would have been of interest to private equity buyers have already been sold. A prime example of past private equity-backed deals is the sale of Vivendi Universal’s Vivendi Universal Publishing subsidiary for an estimated EURO1.6 billion to Cinven, Carlyle Group, and Apax Partners. Vivendi Universal contributed 25 per cent of the funding. Cinven, Carlyle Group, and Apax invested 37.5 per cent, 28 per cent, and 9.5 per cent, respectively. The value was amended from a previous EURO2 billion. The business publishing unit consists of trade press, exhibitions and health activities.

Johnson says there are limited opportunities for private equity buyers in terms of the Vivendi break-up just because of the nature of the assets, Canal + for example where the group doesn’t have full control with its 49 per cent stake. In this respect the carve up probably won’t be of great interest to private equity players.

“The problem is that most of Vivendi’s assets are trophy assets that don’t get valued on a traditional basis. A private equity firm would look to pay a multiple of operating profit which is substantially less than what the vendor thinks the business is worth,” says Johnson.

Johnson says trade buyers are more likely candidates and cites international media company Pearson as a possible buyer. France has been dominated largely by secondary transactions the restructuring of corporates such as Vivendi might provide a welcome source of new deals. Johnson notes that, as far as corporate restructurings are concerned, there are some big companies in France such as Danone and France Telecom with a privatisation programme that is about to start that should spin out some potential deals. L&G Ventures he says has been looking at the Novartis health food business, but Johnson feels this will probably be sold to a trade buyer such as Nestle.

As far as the future of Vivendi is concerned, Stewart Livingston head of European corporate business at the Bank of Scotland, which participated in the Vivendi Universal Publishing transaction, says: “There are a number of attractive assets in there, but some difficult ones. The sector that they are in is not easy at this particular time because many piled aggressively into the media sector when debt multiples were very high.” But there are deals to be done, as the Vivendi Universal Publishing deal has proved. Whether there are any deals left that are attractive to private equity players remains to be seen. Livingston concludes: “I can’t see it creating a huge number of private equity deals. Players will be looking around, but no more than in any other cases.”