UPDATE 1-Vodafone tidies up with $11 bln SFR sale to Vivendi

* Vivendi to pay 7.95 bln euros for Vodafone’s SFR stake

* Analysts say Vivendi paid a full price

* Spate of deals shows telecom giants cleaning up portfolios

(Adds further reaction)

By Kate Holton and Leila Abboud

LONDON/PARIS, April 4 (Reuters) – Vodafone (VOD.L: Quote, Profile, Research) emerged
on top after it finally sold its stake in France’s SFR to
Vivendi (VIV.PA: Quote, Profile, Research) which, like other recent buyers, paid a full
price to secure control in a major realignment of the telecoms

The long-awaited 7.95 billion euros ($11.31 billion) deal
came just two weeks after Deutsche Telekom AG (DTEGn.DE: Quote, Profile, Research) agreed
to sell out of the U.S. for $39 billion and after Vodafone
itself agreed to buy out its Indian partner for a hefty price.

Analysts said the price Vivendi paid for SFR was at the
higher end of expectations.

This recent activity reflects a move by telecom firms to
divest minority assets they do not control, concentrate on their
core markets and return more money to shareholders who are aware
of the low growth prospects in mature countries.

Vodafone, Deutsche Telekom both pledged multi-billion euro
share buybacks after their deals, while Vivendi also signalled
that the SFR buyout would lead to an increase in its dividend.

The deals also reflect the fact there are fewer acquisition
targets in high-growth emerging markets, leading Europe’s
telecom giants to turn their focus to more mundane matters such
as managing their home markets and improving balance sheets.

Consultants PRTM said such deals showed telecom firms were
now more interested in national depth than global reach.

Robin Bienenstock, analyst at Sanford Bernstein, said
Vodafone and Deutsche Telekom’s deals both reflected a desire to
exit countries where they were weak or in a non-controlling
position to focus on markets where they were stronger.

“You’re going to see a massive portfolio cleanup among
telecom operators because they need capital to reinvest in their
core networks,” she explained. “The only way to do that is to
jettison the weak stuff and plough money into the markets where
you are stronger– this is a scale game.”


Reuters Insider show on http://link.reuters.com/sab88r

For Vodafone, the deal marks the latest and largest move in
its strategy to sell minority stakes it does not control to
increase cash flow and, to a degree, retrench after a
decade-long international expansion.

For Vivendi, the deal brings closer its vision of a new-look
group with higher cash flows, more exposure to telecoms and its
mature home market of France. [ID:nLDE70I0XN]

However analysts said Vivendi had paid a full price for the
44 percent stake — 7.75 billion euros plus 200 million euros to
reflect the generation of cash between January and July 2011.

Shares in Vodafone rose over 2 percent in early trading
before settling to be up 1 percent, while Vivendi fluctuated,
falling 1 percent before recovering to be up 1 percent.

“For Vivendi, the price is too high,” Bienenstock said.

“Telecom stocks in mature markets trade for about 5.1 times
to 5.3 times EV/EBITDA, but the French market is less healthy
than most European markets and the rights attached to the stake
do not justify raising the valuation by almost 20 percent.”

In slides posted on Vivendi’s website, the company predicted
that the deal would boost its 2011 adjusted net income by 15-18
percent. It also said the deal would add at least 600 million
euros to its adjusted net income in 2012 and 2013, with some 350
million euros on a recurrent basis.

Vivendi also reassured investors that the deal would be
financed without a share issuance and said it expected its
credit rating of ‘BBB’ to remain unchanged.

Analysts are predicting the deal to be 15-20 percent
accretive to Vivendi in the coming years.

Some also expect the deal to help Vivendi’s stock by
reducing the conglomerate discount long put on the shares of
anywhere up to 20 percent due to the fact the parent company did
not have access to all the cash flows of its various divisions.

UBS analyst Polo Tang also questioned whether Vivendi was
buying at the wrong time as the French market becomes more
competitive and tariffs look set to fall further when Internet
service provider Iliad (ILD.PA: Quote, Profile, Research) launches as the fourth mobile
operator next year.

“Initially, the market may react positively to the SFR
buyout,” he said. “However, we think Vivendi has potentially
paid a premium multiple to almost double its exposure to an
asset seeing intensifying competition.”

In comparison, the deal caps a good few days for Vodafone,
after it announced last week a deal to buy out its Indian
partner Essar, with which it often had a fractious relationship.

Responding to investor pressure to clean up its portfolio,
Vodafone has already sold its minority stake in China Mobile,
sold interests in Japanese carrier SoftBank (9984.T: Quote, Profile, Research) and begun a
sale process of the nearly 25 percent it owns of Poland’s
Polkomtel. [ID:nLDE67G18L] [ID:nLDE69I0QM]

In the U.S., it is also nearing a deal to resolve a
long-standing issue with joint venture partner Verizon (VZ.N: Quote, Profile, Research)
where it has not received a dividend for several years.

Thomas Singlehurst, analyst at Citigroup, said neither
company had really gained the upper hand over SFR but said for
sentiment, Vodafone probably emerged the stronger.

“But it is only a marginal victory,” he said.
($1=.7031 euros)
(Editing by Greg Mahlich and Louise Heavens)

UPDATE 1-Vodafone tidies up with $11 bln SFR sale to Vivendi