In a move intended to leverage its position in the fast-growing broadband market, French entertainment and telecommunications group Vivendi SA said it was in talks to acquire the remaining part of telecommunications firm Neuf Cegetel that it does not already own.
Vivendi’s mobile phone unit SFR already owns about 40.5% of Neuf. The other major shareholder is French trading group Louis Dreyfus, which holds 29.5% of the firm’s capital and is now considering selling its stake. Vivendi, in turn, owns 56% of SFR, while British mobile giant Vodafone Group PLC owns the other 44%.
As telecom firms seek to deliver an ever richer array of products over broadband, gaining market share is becoming increasingly valuable. For Vivendi, acquiring the rest of Neuf would cement its position as a player in mobile, fixed, and broadband services, and would allow it new ways to sell products from its Universal Music Group unit and movies from its pay-TV platform Canal Plus.
Neuf has become the second-largest broadband company in France, after former state-owned monopoly France Telecom SA, by offering so-called “triple play” packages of television, telephone, and Internet access for about €30 per month. Neuf’s other major competitor is Iliad SA, another successful start-up with a similar business model that markets “triple play” deals under the brand name Free.
Both Neuf and Free launched after French regulators opened up the telecom sector to competition in the late 1990s, ending the monopoly of France Telecom. In an effort to level the playing field for new entrants, regulators ordered France Telecom to rent out part of its telephone network to competitors.
Those efforts have born fruit. Neuf and Iliad having grown into profitable firms able to compete aggressively with France Telecom and with market capitalizations of €7.6 billion and €4.07 billion respectively. French consumers now have access to high-quality broadband services, available at a low cost, and have also been avid in taking up new services like Internet-based calling and television delivered over the Internet, known as IPTV.
Some 22.5% of French have access to broadband connections, ranking the country 13th out of 30 countries in terms of broadband penetration rates, ahead of the U.S. and Japan, but behind leaders Denmark and the Netherlands, according to the Organisation for Economic Co-operation and Development. French consumers pay $3.70 per megabit per second of broadband, compared with $12.60 per megabit per second in the U.S. and $5.20 in the United Kingdom according to the OECD.
That fierce competition has upped the stakes for the French broadband market and a deal for the rest of Neuf could cost Vivendi dearly. Neuf’s share price has skyrocketed nearly 40% since January. News of a possible deal was first reported Monday by French weekly newsletter La Lettre de l’Expansion, and followed by a more detailed report in le Figaro on Tuesday.
If the deal were to go through it would likely quell Vivendi’s appetite for acquisitions for awhile. In early December, Vivendi announced plans to acquire a controlling stake in videogame maker Activision Inc. by merging its own gaming division into Activision and contributing cash to form a new company: Activision Blizzard. In a complex transaction, which values all of Activision at $8 billion, Vivendi will pay $27.50 per share and end up with up to 68% ownership of the new company.
Neuf’s shares were suspended in trading on the Paris bourse on Tuesday morning. The firm released a statement saying: “Neuf Cegetel, having been informed of discussions between its two main shareholders, SFR and the Louis Dreyfus group, has requested the suspension of trading on its shares, pending further developments on these discussions.”
Leila Aboud is a writer for The Wall Street Journal
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