Vivendi eyes 'transformational' deals to become media player

Vivendi may have taken some criticism from an activist investor recently, but Arnaud de Puyfontaine, chief executive of the French media group, says he is back on the front foot.

Vivendi, the owner of Universal Music Group and Canal Plus, this week entered exclusive talks with Orange to acquire a majority stake in Dailymotion, the online video site.

The deal will be the first of many, Mr de Puyfontaine tells the Financial Times in an interview amid visits to Vivendi's US-based shareholders.

"We are on a journey to become a fully dedicated player in media and content," he says. "We are thinking about transformational transactions."

Reports have suggested that one of the potential targets could be Sky, the pay-TV operator in which Rupert Murdoch's 21st Century Fox owns a 39 per cent stake, but Mr de Puyfontaine says Vivendi has no interest.

He also rules out ITV, the British free to air broadcaster, saying, "ITV is a great company," but it is "too expensive".

The company will look at acquisition targets "with intrinsic value" that can be unlocked by Vivendi's other businesses. "We will not do deals just because we can do them," he insists. "We will do deals that are fit for purpose and which will create value for our shareholders."

There have been many iterations of Vivendi over the years. It started life in the 19th century as a water utility under Napoleon III and gradually branched out to become a large collection of disparate media, telecoms and gaming holdings with a huge debt burden.

In the past two years it has been aggressively streamlining by selling an estimated €35bn of assets, including its stakes in SFR, the French wireless carrier, and GVT, the Brazilian telecoms group. When the last of the sales is completed by the end of May and the company has paid out its dividend, the group's cash position will be about €11bn.

The cash has attracted activist interest, with Vivendi's strategy and dividend policy criticised by P. Schoenfeld Asset Management, a US hedge fund that holds 0.8 per cent of the group's shares. PSAM wants a larger amount of cash - about €9bn - to be returned to shareholders and has also called for the sale of UMG.

But Mr de Puyfontaine and Vincent Bollore, the French investor and entrepreneur who is Vivendi's chairman and largest shareholder, have a different plan. Mr de Puyfontaine says they have begun to transform Vivendi from a holding company into a streamlined, operating company with integrated divisions specialising in content and distribution.

"We want to use efficiently the resources available to us," he says.

Dailymotion is a case in point. Vivendi has agreed to buy an 80 per cent stake in the company, valuing the online video operator at €265m. Mr de Puyfontaine points to the possible synergies it offers with Canal Plus and UMG. As a digital distribution platform Dailymotion has a vast, global reach and could introduce UMG's roster of artists and Canal Plus programming to new, international audiences.

While not revealing potential takeover targets, Mr de Puyfontaine is more keen to talk about Vivendi's success in theatrical movie production: Studio Canal, the movie arm of Canal Plus, finances more movies in the UK than any other entity and recently scored with its big-screen version of Paddington, which has been a box-office hit around the world. Book publishing could be another area for Vivendi to explore, he suggests. "Eighty per cent of the creative ideas in film are coming from ideas in publishing books."

He hints that Vivendi needs greater scale and more distribution options for its content, pointing to the discrepancy that exists between US and European television productions. Marco Polo, a recent series from Netflix, cost an estimated €90m for 12 episodes; Versailles, a Canal Plus series, cost €30m for 10 episodes, he says.

Greater scale of distribution would allow Vivendi to invest more in it programming, he says.

The company is also exploring expanding its concert ticketing business, which could have significant benefits if it is plugged in to UMG.

Those synergies would be lost if Vivendi sold UMG, as PSAM has proposed, and Mr de Puyfontaine has stern words for proponents of a break-up. "We are strongly against a separation. There would be a real risk attached to it," he says.

But he stresses he wants to work with PSAM. "At the end of the day, I hope we can have positive discussions with them."

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