Vivendi’s SFR is top target for French cable king

February 17, 2014

By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

France’s cable king promised investors a slew of deals when he floated Altice, his investment vehicle. The biggest and best would be Vivendi’s mobile operator SFR.

Armed with cheap debt and a thrifty mindset, Patrick Drahi has gobbled up assets in Western Europe, Israel and the Caribbean. But competition is intensifying. The 1.5 billion euro Dutch listing of Altice gives him fresh currency for deals.

The obvious, much-rumoured move would be to try to acquire SFR, France’s second-largest mobile group. Merging SFR with Numericable, a French cable business that Drahi also floated recently, and which Altice controls, would create a formidable rival to Orange, the national champion. Analysts estimate synergies could top 3 billion euros.

The catch is that Vivendi wants to hand SFR to its own shareholders. This looks more palatable than a leveraged selloff with big job cuts. Then again, French mobile is a brutal market. A standalone SFR might be worth barely four times EBITDA, or 10 billion euros. A spinoff is supposed to unlock “hidden value.” If it threatens to do the opposite, Vivendi might agree to sell its unit – especially if Drahi shares synergies through a decent premium. Numericable is constrained by debt. But Drahi could now raise equity through Altice, and back a Numericable capital-raising. An unusual IPO clause allows 50 percent more shares to be issued after just 45 days if Altice finds a big deal.

Drahi has other options. Altice touts five to 10 prospects in existing markets; three or four growth plays; and two or three phone companies. These might include Cable & Wireless, Columbus or Digicel for Caribbean heft. In Portugal, Zon Optimus would fit nicely if African billionaire Isabel dos Santos is willing to trade. So would private cable firms Euskaltel, Operador R or Telecable in neighbouring Spain.

Britain’s Colt would give extra “business-to-business” capability. Israel’s Partner, which already shares networks with Altice, could eventually be a merger partner too. He could either sell out in Belgium, or bulk up by buying Voo, a cable outfit.

That is a long list. But Drahi has sold shareholders his ability to spot bargains, cut costs, and marry cable with telecoms. He has to keep the M&A machine running.

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