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For Sale Signs Go Up At Canal+

By | July 31, 2002

      Vivendi Universal’s decision to restructure Canal+, with an emphasis retaining its French assets, is a further indication that the operator’s pan-European ambitions have dramatically been curtailed.

      Vivendi will transfer its key French businesses under the already listed Canal+ SA (essentially the French part of Canal+). These include Canal+, Canal Satellite, Sogecable (Spain), Multithematiques, I-television, Pathe Sport and Studio Canal. Canal+ will go back to having a French focus. Other assets will be sold, Vivendi said. “The remaining assets, especially those outside France, will be retained by the existing Canal+ Group with a view to disposing of all or some of them.” Vivendi will ultimately have a 49 percent stake in Canal+ SA.

      The move to restructure Canal+ is not a surprise and should give Vivendi a number of benefits. Asset sales will give the operator much needed cash to reduce debt. Vivendi has around 17 billion euros ($16.7 billion) of debt and needs to act fast. Vivendi CEO Jean-René Fourtou has wasted little time in coming to grips with some of Canal+’s financial problems.

      By giving Canal+ a French focus, the operator could win the public relations battle, at least in France. Sarah Simon, a media equity analyst at Morgan Stanley, said, “We believe this is a strong move on the part of [Vivendi Universal] in preserving the French nature of Canal+, which is considered to be important cultural contributor to French cinema and television. We believe that maintaining the French character of Canal+ will secure [Vivendi Universal] the continued support of the French government and banking environment, which we believe is essential for the company to secure bank funding which will see it through the liquidity issues spanning the next 12 months.”

      It seems Vivendi Universal, like a number of other high-profile operators, has had to abandon its expansive global strategy in order to cement its base back home. Certainly, the announcement is the final straw that breaks the back of Canal+’s ambitions of becoming a pan-European powerhouse.

      Buyers Wanted

      The problem Vivendi now faces is whether it can find buyers for some assets. For example, Canal+ recently merged its Polish operations with UPC to create Nowa Cyfra+ (new Canal+), the leading pay-TV player in Poland. There seem to be only two likely buyers for this asset. Number two player Polsat could be persuaded to come in and consolidate the market still further. UPC is unlikely to have the financial clout to buy out Canal+ here.

      It is also possible that BSkyB could look at the situation in Poland and see it as an ideal situation to expand its European asset base. It is already on the verge of acquiring Telepiu in Italy and could expand its presence still further. Yet, the Polish market is not as attractive as the Italian market and is hardly considered one of Europe’s blue chip markets for pay-TV. News Corp has looked at Germany, clearly sees Italy as a blue chip market, and may think Poland represents an ideal way of expanding its pan-European operations. The deal in Italy remains the key one for News Corp. Italy has little cable penetration, and, unlike Germany, not a strong free-to-air TV market, so it represents an ideal second market behind the United Kingdom for BSkyB. Vivendi is likely to gain around one billion euros ($983 million) from the sale of Telepiu.

      A sale of its stake in leading Spanish pay-TV operator, Sogecable, could also be in the cards. The likely buyer could well be Grupo Prisa, a fellow shareholder in Sogecable. It wasn’t so long ago that Italy and Spain were seen as core parts of Canal+’s strategy, but now its exit from both markets is anticipated.

      Battle for Canal+ Technologies?

      The possible sale of Canal+ Technologies comes as no surprise. The middleware/conditional access system supplier could possibly be a takeover target for companies such as Liberate Technologies, Thomson Multimedia, NDS and Kudelski. Canal+ Technologies did a lot of its business with Canal+ affiliated pay-TV operators, so if Vivendi starts selling these assets, it is likely to make things much tougher for Canal+ Technologies. A prime example is in Italy. If, as expected, News Corp takes over Telepiu, Canal+ Technologies can expect a rapid exit from the Italian market.

      A possible dark horse here is Liberty Media after its recent acquisition of a controlling interest in OpenTV. However, since Liberty Media is looking to concentrate its efforts on acquiring Deutsche Telekom’s cable assets, it may sit this one out. Vivendi could receive around 250 million euros ($245.2 million) from the sale of Canal+ Technologies.

      Canal+ Nordic, its premium Scandinavian channel, is a likely target for the Modern Times Group, although Telenor, the owner of the Canal Digital platform, could also be interested.

      –Mark Holmes

      Canal+ SA: The Core Assets
      Canal+ French Premium TV Channel
      Canal Satellite French DTH Platform
      Multithematiques French Themed Channels
      I-television News Channel
      Pathe Sport Sports Channel/Rights Mgmt
      Sogecable Spanish pay-TV platform
      Studio Canal Film Studio
      Source: Company data, Morgan Stanley Research
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