On 5 March, Vivendi confirmed they had received two offers for SFR (Bouygues and
Numericable). Both offers have a similar cash component and a stake in a merged
entity. Valuing Vivendi today is consequently taking a view on the value of the
successful combination but also, lest we forget, taking a view on the value of the
remaining assets. Using €17bn for SFR (based on our €12bn standalone SFR value
plus a 40% consolidation premium), the media assets would trade at 8.3x 2014E and
7.5x 2015E EV/EBITDA. While this seems reasonable (European media sector is on
10.2x and 9.2x, respectively), there is a telecom asset in there. If we put GVT on 6.5x
EV/EBITDA then the media assets would be on 9.2x and 8.4x, respectively. Finally, if
adjusting for the poor cash generation of the media assets (10-15% leakage), the
media assets would trade on 10.4x 2014E and 9.4x 2015E (in line with European
Media). We believe this provides no upside. Reiterate Equal Weight with an
increased €20.00 price target resulting from a higher valuation on SFR (€19.00
before). For investors wanting to participate in French telecom consolidation, we
prefer Iliad and in media our top picks are Lagardère, Publicis and SES.
- Potential impact of selling SFR to Numericable – Our note examines the potential
impact of the mooted Numericable / SFR transaction. We feel that €4bn for a 32%
stake is fair and therefore the €15bn total value is also fair.
- Potential impact of selling SFR to Bouygues – Our note examines the potential impact
of the mooted Bouygues / SFR transaction. We feel that a €19.0bn valuation post
synergies could be a best case scenario for Vivendi.
- Two negative developments on the media front – The French football league is putting
the television rights to tender early (April) and is looking for a 30% increase according
to Le Figaro on 6 March. The US music market is down 14% year-to-date in volume
terms, a significant worsening of recent trends.