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Growing valuation discount since Universal Music spin-out has been source of frustration for French billionaire

Vincent Bolloré spent years trying to convince investors his media conglomerate Vivendi was not just a collection of disparate businesses. This week, the French billionaire admitted defeat.

The Paris-based group whose activities range from advertising to pay-TV said on Wednesday evening that it would explore splitting itself up into three businesses. Investors welcomed the unexpected change of tack, sending its share price up as much as 10 per cent, and narrowing a large implicit gap between its market capitalisation and the sum of its parts.

“Breaking up the company is fantastic news for Vivendi shareholders,” said Olivier Fortesa, co-chief executive of activist investor Amber Capital, a top 10 investors with about 1.5 per cent of the group’s shares. “Day one, we see at least an additional €8bn in potential value to be unlocked.”

The lack of meaningful synergies between Vivendi’s businesses has long been a problem for investors — and a source of frustration for Vivendi. Bolloré’s 43-year-old son, Yannick, who has run Vivendi since his father retired last year, told the Financial Times this year that his goal was to show the group was “a coherent company and not a disparate set of holdings”.

But the trading discount to the sum of Vivendi’s underlying assets, estimated by Barclays analysts at about 40 per cent, has kept growing, nearly doubling since the spin out of the group’s most valuable businesses, Universal Music Group, two years ago.

“Despite all the work that’s been done, Vivendi has not managed to reduce the discount. So at a certain point you have to be pragmatic,” said a person close to Vivendi. 

The completion last month of a long-awaited deal to buy rival French media conglomerate Lagardère Group, which includes publisher Hachette and travel retailer Relay, also gave Vivendi the space to act.

“Vivendi now has more time to pursue this plan considering the acquisition of Lagardère has recently completed, and the portfolio is more diverse than it used to with exposure to industries outside of media and entertainment,” wrote Silvia Cuneo, an analyst at Deutsche Bank.

The successful spin-off of Universal Music, whose shares have increased 10 per cent since listing in Amsterdam, means Vivendi believes “a separation of [French pay-TV station] Canal+ and advertising agency Havas could drive further value crystallisation for Vivendi”, she added. UMG’s market capitalisation stands at €47bn.

A planned break-up represents a new phase in Bolloré’s efforts to reshape his family’s holdings. The 71-year-old corporate raider has sold several of the businesses held by Bolloré Group, the family’s transportation and logistics company, slimming it down before turning his attention to Vivendi. Bolloré, who controls Vivendi through a 30 per cent minority stake, remains the key decision maker in the family businesses.

Vivendi is looking at options including a possible sale of its 24 per cent stake in Telecom Italia, according to Bloomberg. The move could help resolve a stand-off between the Italian company and its largest shareholder over a proposed €22bn sale of its fixed-line telephone network to private equity group KKR. Vivendi declined to comment.

Until recently, many investors and analysts had speculated that Bolloré would simply take Vivendi private — buying out minority shareholders without paying a big premium — using the proceeds from other divestments like UMG.

“It’s clear that this changes the direction of the project,” said a second person familiar with the company’s thinking. “The average discount for a conglomerate is 15 to 20 per cent. If it’s this pronounced, it means Vivendi has . . . not been able to find shareholders who are interested in the ensemble of these assets.”

The company is expected to take up to 18 months to study the plan. In the announcement on Wednesday, it signalled that the break-up would be evaluated based on impact for “all stakeholders”, as well as the tax implications.

If it goes ahead, both Canal+, which is Vivendi’s biggest profit centre, and Havas would become separate listed companies, with the Bolloré family holding company remaining a key shareholder.

Vivendi would then plan to have a third listed branch as an investment company that would house Lagardère, and include other listed and unlisted holdings in media and entertainment companies.

Both Havas and Canal+ have grown and made acquisitions to expand into new markets in recent years. Vivendi’s hope is that listing them will both unlock value and also provide the ability to use shares for further acquisitions. However not everyone buys this rationale.

“Splitting the company into three would not give Canal+, Havas or Lagardère more money to spend on M&A,” said Julien Roch an analyst at Barclays. “Vivendi together had arguably more firepower by being able to sell assets.” 

The move may also make it easier for the Bolloré family holding company to increase its stake in one of the three smaller entities. “The split gives more flexibility to Bolloré,” Roch said. 

“A break-up would make it easier to grow Canal + and Havas to their full potential. It also creates more optionality with opportunities for potential mergers and consolidations,” says Fortesa at Amber, which waged an activist campaign at Lagardère and helped Bolloré secure the acquisition of the media group. “We believe this marks the beginning of a new era for Vivendi, from a financial and industrial standpoint.”

Paris successfully pushed for weaker due diligence reporting by lenders and state-backed funding for nuclear power plants

France has secured a partial carve-out for banks from new EU rules to make companies responsible for environmental impacts in their supply chains.

Paris also won, in separate negotiations, assurance that state-backed funding for its nuclear power plants will be possible under a reform of the EU electricity market, the culmination of a concerted effort to champion the low-carbon fuel in the face of opposition from Luxembourg, Austria and Germany.

Agnès Pannier-Runacher, French energy minister, hailed the decision as “excellent news”. “It gives us the means to ensure long-term financing for the transformation of our electricity system,” she said.

The EU due diligence law agreed on Thursday will force companies with more than 500 employees and €150mn in revenue to report and take measures to prevent worker exploitation, deforestation and pollution in their supply chains. Civil society groups will have the ability to take businesses to court for non-compliance with the rules.

France, backed by countries including Italy and the Czech Republic, has succeeded in making sure that banks, asset managers and investment groups will only have to report on upstream activities such as purchasing office equipment.

They will not have to undertake due diligence on the activities of clients to whom they are offering loans — something that the European parliament had pushed for in the talks.

In a note circulated among negotiators earlier this month, the European Central Bank also warned that “excluding the financial sector would be counterproductive to the intention of the [law], as it would allow the EU financial sector to continue to fund activities detrimental to the EU [environmental and social governance] agenda”.

Arianne Griffith, corporate accountability lead at the NGO Global Witness, said that it was “shocking” that EU countries had “sunk plans to ensure that banks stop investing in environmental and human rights abuses”.

Eelco Van der Enden, chief executive of the Global Reporting Initiative, said that it was “disheartening” to see that the French effort had watered down the application of the rules to the financial sector but that a review clause in the agreement could offer the opportunity to include them at a later stage.

Banks with more than 500 employees will, however, have to draw up and implement climate transition plans to show what they are doing to mitigate their impact on global warming.

Richard Gardiner, head of EU policy at the World Benchmarking Alliance, said that “the significant upside” of the law was the obligation for banks to adopt and implement a “meaningful transition plan”, overriding current voluntary pledges to bring carbon emissions to zero.

Both the energy market reform and the due diligence rules must be formally approved by the European parliament and member states in votes due to take place early next year. Once the due diligence directive is approved, EU governments will have two years to introduce the rules in national legislation.

The media conglomerate remains influential in the francophone world

If Vivendi today were the Rolling Stones then Mick Jagger would have already left the band. Universal Music was the frontman of the French media conglomerate that is controlled by French tycoon Vincent Bolloré.

The record label — home to Their Satanic Majesties among others — was successfully spun off in 2021 for €47bn. The rest of the group took it hard. Fans have abandoned Vivendi’s shares and the conglomerate discount is now close to 40 per cent. The Bolloré family was spurred to act. A fuller break-up of the business should follow. 

The proposal would mean new solo stock market careers for broadcaster Canal+ and advertising agency Havas. The remaining Bolloré interests, such as stakes in publisher Lagardère and Telecom Italia, would continue within a listed holding company.

A simple sum of the parts suggests the break-up of the group, worth €11.2bn before news broke, would be an easy financial win. Longer-term strategic goals should be simpler for solo acts to achieve.

Vivendi remains influential in the francophone world. That linkage has helped Canal+ to resist US streaming services like Netflix in recent years. The broadcaster has managed to integrate streaming services into its own offering. Profits have grown solidly since 2016.

If we value Canal+ at six times ebitda like UK broadcaster ITV, it would have an enterprise value of €5bn. Supposing Havas is worth a multiple of seven times like peers Publicis and Interpublic, it would be worth almost €3bn.

The final gain for shareholders depends on the discount that would apply to the investment holding company. If it stays at 40 per cent then a further 5 per cent bump for the sum of the parts might follow a break-up. A 30 per cent discount might be fairer, says Barclays, and closer to comparable peers. It would give credit for the success of Universal. Additional returns would then move above one-tenth for the split.

Operationally, the break-up would pose some puzzles. Dividing up Vivendi’s €1.9bn cash pile would be one issue.

The break-up would deliver value. Investors could meanwhile expect the Bolloré family, these days fronted by Vivendi chair Yannick Bolloré, to continue calling the tune.

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