Vivendi's SFR to Offer $6.4 Billion for Neuf Cegetel

Vivendi's SFR to Offer $6.4 Billion for Neuf Cegetel

Dec. 20 (Bloomberg) -- Vivendi SA's SFR phone unit offered to buy the rest of Neuf Cegetel for 4.5 billion euros ($6.4 billion) to challenge France Telecom SA in the market for combined fixed-line, Internet and mobile services.

SFR, which owns 40.5 percent of Neuf, will pay 34.50 euros a share for the 29.5 percent stake held by Louis Dreyfus & Cie., the commodities firm that helped found Neuf a decade ago. SFR will bid 36.50 euros for the remaining shares in the market. The prices include the 2007 dividend.

The acquisition of Boulougne-Billancourt-based Neuf Cegetel, France's second-largest fixed-line phone company, adds 3.1 million high-speed Internet customers for SFR and more than 3 billion euros in annual revenue. SFR, Vivendi's largest business, has about 34 percent of the French mobile market, compared with France Telecom's 45 percent.

``This would create a more formidable competitor,'' Jerry Bellman, an analyst at Kepler Equities in Paris, said in a telephone interview. ``For SFR this is a defensive move, to be well-positioned for fixed-mobile convergence.''

SFR will borrow money from Vivendi at market rates to pay for the shares, Paris-based Vivendi said in an e-mailed statement today. Vivendi will seek 1 billion euros to 2 billion euros from its shareholders to finance the purchase, which will add to net adjusted income from 2009, according to the statement.

Shares Drop

Neuf shares fell 1.17 euros, or 3.2 percent, to 35.57 euros as of 11:23 a.m. in Paris trading. The stock had risen 42 percent in the past 12 months before today, in part on speculation of a bid by SFR. Trading was suspended yesterday and Dec. 18 pending an announcement.

Vivendi shares gained 10 cents, or 0.3 percent, to 31.20 euros, giving the company a market value of 36.3 billion euros.

The transaction is the biggest announced telecommunications deal since June 30, when investors led by the Ontario Teachers' Pension Plan and Providence Equity Partners Inc. agreed to buy BCE Inc., Canada's biggest phone company, for C$34.2 billion ($34.1 billion).

Vivendi owns 56 percent of SFR, which is France's second- largest provider of mobile-phone services, while Vodafone Group Plc holds the remaining 44 percent. Vodafone approves of the transaction, which ``supports fixed and mobile integration in mainland Europe, in line with our strategy,'' according to a statement from the Newbury, England-based company.

SFR, led by CEO Frank Esser, accounted for 43 percent of Vivendi's third-quarter sales and 53 percent of profit, making it bigger than Vivendi's Universal Music Group and pay-television unit Canal Plus.

Market Value

Based on the public offer price, the deal puts a value on Neuf Cegetel of 7.66 billion euros, less than the company's 7.7 billion-euro market capitalization when trading was halted Dec. 18. The transaction values Neuf Cegetel at 25.7 times this year's forecast earnings, versus an average price-earnings ratio of 14.7 for European telecommunications stocks, Bloomberg data shows.

``Neuf Cegetel in the past two, three years has demonstrated an operational excellence that justifies a good price,'' Alexandre Iatrides, an analyst at Richelieu Finance, said in an interview on Bloomberg Television. ``This is a highly strategic acquisition. The logic of the deal is clear.''

Neuf Cegetel's nine-month sales rose 14 percent to 2.44 billion euros, boosted by takeovers, the company said in November. The fixed-line operator bought Deutsche Telekom AG's T- Online France, operator of the Club Internet brand, in July for about 500 million euros.

The purchase of T-Online France vaulted Neuf Cegetel past Iliad SA as France's second-biggest provider of high-speed Internet via copper phone lines, known as asymmetric digital subscriber lines, or ADSL. Neuf bought Time Warner Inc.'s AOL France unit for 288 million euros in October last year.

Client Growth

Neuf Cegetel had 3.12 million broadband-Internet clients at the end of September, compared with 2 million a year earlier. France Telecom, the country's former phone monopoly, had 6.9 million ADSL clients at the end of September.

Dreyfus created telecommunications company LDCom in 1998 and changed the name to Neuf Telecom in 2004. Neuf merged with Vivendi's fixed-line and Internet division Cegetel in 2005.

Vivendi has stepped up the pace of acquisitions in the past year, buying French pay-TV rival Television Par Satellite in January, BMG Music Publishing Group in July and announcing the purchase of Activision Inc. this month.

SFR agreed to buy Tele2 AB's French fixed-line telephony and Internet unit this year for about 3.3 billion kronor ($501 million) in a first move to offer high-speed Web access as well as mobile-phone services.

BLOOMBERG