Vivendi’s Playlist is Only on Hold
The company’s remaining music and pay-TV businesses still hold some growth potential, supported by Vivendi’s deep pockets.
In music, silence can signify a pause rather than an ending. That’s just what shareholders should expect from Vivendi .
The Paris-based media conglomerate has sold off assets to amass a war chest of about €10 billion ($11 billion). Investors are expecting either more cash to be returned to them or deployed to expand the remaining two businesses—Universal Music Group or Canal Plus Group , its film and television subsidiary.
As yet, Vivendi hasn’t budged. A €1 dividend per share remains unchanged. An announced 10% buyback program will only proceed if the stock falls to €20 or lower. The average price over the past three months was €20.75. But Vivendi’s financial firepower and Chairman Vincent Bolloré ’s reputation for discipline provide some reason for investors to wait.
Things should be looking up for Vivendi’s businesses. Internet music streaming is growing quickly, and should eventually deliver higher margins for the company. Licensing music catalogs typically results in a steady stream of revenue with little additional cost. Last year Google bought Songza and Apple acquired Beats Music to expand into music streaming. Increased competition allows UMG more bargaining power.
In pay-television, Canal Plus’s emerging markets expansion is a decent long-term bet even if growth looks more uncertain currently. The TV business needs to cut costs, an area where Mr. Bolloré’s skills have been proven at Havas, a Paris-based advertising agency that is majority-owned by the Bolloré family.
The hard part will be to find new opportunities for growth. Here Mr. Bolloré is more apt to take small steps than giant leaps, with higher growth content assets. Closer ties are expected between Vivendi and Havas: Earlier this year the pair launched Global Music Data Alliance to mine big data to build more precise marketing and distribution strategies.
And when it comes to deal-making, the activist investor’s interest in the company, recently increased to 8.2% from 5.2%, should at least mean that decisions are better aligned to investors’ interests. This is particularly welcome in light of the company’s troubled acquisition history.
Vivendi’s rump is trading at about 10 times 2015 earnings before interest, taxes, depreciation and amortization, Jefferies says, compared with the 12 times for ITV and Time Warner . Some market dissonance could further hit Vivendi’s valuation. But shareholders should stick around to hear the next part of this song.