UPDATE 3-Vodafone sells SFR in latest major telecom deal

* 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 Levy dividend comment)

By Kate Holton and Leila Abboud

LONDON/PARIS, April 4 (Reuters) – Vodafone’s exit from
France’s SFR marks another step in the revamp of its portfolio
and reflects how Europe’s telecom giants are ditching weaker
assets to achieve scale elsewhere ahead of a wave of big
investments.

The long-awaited 7.95 billion euros ($11.31 billion) sale of
Vodafone’s (VOD.L: Quote, Profile, Research) 44 percent stake in SFR to Vivendi (VIV.PA: Quote, Profile, Research)
comes two weeks after Deutsche Telekom AG (DTEGn.DE: Quote, Profile, Research) agreed to
sell out of the U.S. for $39 billion.

Vodafone also recently agreed to buy out its Indian partner
for a $5 billion price tag to increase its exposure to the
world’s fastest-growing mobile market.

This recent flurry of deal-making reflects a move by telecom
firms to counter sluggish growth and respond to threats from new
entrants, such as Google (GOOG.O: Quote, Profile, Research) and Apple (AAPL.O: Quote, Profile, Research), who are
eating in to mobile profits.

With consumers using more smart phones and tablet computers,
data is exploding on networks, raising the need for investment.

To cope, telecom operators, such as Vodafone and Deutsche
Telekom, are cutting down their portfolios to focus on markets
where they can achieve scale, unwinding aggressive international
expansions undertaken a decade ago.

Vivendi’s move for SFR will increase its cash flows and
profits, giving it more firepower to fend off increasing
competition in the French telecoms market and spend to acquire
precious fourth generation mobile spectrum this summer.

Chief Executive Jean-Bernard Levy said later on Monday that
investors should not expect a sharp increase in dividends after
the SFR deal and said the move would reduce the group’s ability
to make further significant acquisitions.

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For a story on the SFR sale [ID:nLDE71O0VT]

For a story on the Essar deal [ID:nLDE72U0FG]

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

Reuters Breakingviews column [ID:nLDE7330L2]
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The telecom giants are also returning money to shareholders
in a bid to placate them before undertaking large investments in
mobile and fixed networks as well as spectrum auctions now
underway in the U.K., France, and Spain.

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

Shares in Vodafone, the world’s largest mobile operator by
revenue, have risen almost 30 percent since it indicated its new
strategy in July 2010, while Vivendi and Deutsche Telekom shares
also got a boost from the recent deals.

Robin Bienenstock, analyst at Sanford Bernstein, said more
deals could be in the offing.

“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.”

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.

For Vodafone, the SFR deal marks the latest and largest move
in its strategy to sell minority stakes it does not control.

Responding to investor pressure, Vodafone has already sold a
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]

The only major issue outstanding is its need to secure a
dividend from its U.S. joint venture with Verizon (VZ.N: Quote, Profile, Research),
Verizon Wireless, where it is a minority owner. Some have
speculated that the two giants could one day merge instead.

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] [ID:nLDE71O0VT]

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 0.8 percent, while Vivendi fluctuated,
falling 1 percent before recovering to be up 0.9 percent.

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

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.
($1=.7031 euros)
(Editing by Greg Mahlich and Louise Heavens)

UPDATE 3-Vodafone sells SFR in latest major telecom deal