By Philip van Doorn, MarketWatch
“We really like family-controlled businesses, where there is a dynamic value creator at the top,” Marcus said. Vivendi’s chairman is Yannick Bollore.
Marcus began buying shares of Vivendi in April 2012. He stressed that “we always start with a small bite and nibble our way up to significant position sizes over time … especially when these stocks are meandering or declining.” Over the past seven years through March 26, Vivendi’s shares (those listed in France) have returned 190%, including a 21% return in 2019, but Marcus believes they are still “grossly undervalued.”
Vivendi owns Universal Music Group, as well as 24% of Telecom Italia SpA /zigman2/quotes/203233528/delayed IT:TIT +0.95% , the largest telecommunications provider in Italy. Vivendi plans to sell up to half of Universal Music to form a strategic partnership. This sale could “bring in somewhere between 11 billion and 13 billion euros ($12.4 billion to $14.6 billion),” Marcus said, leading, he expects, to higher dividends and share buybacks, as well as “a war chest to go after other undervalued media assets.”
There is no predicting which company will jump on the opportunity, but Marcus listed Tencent Music Entertainment Group /zigman2/quotes/205527956/composite TME +0.23% (a unit of Tencent Holdings /zigman2/quotes/204605823/delayed HK:700 -2.67% /zigman2/quotes/207908563/delayed TCEHY -3.02% /zigman2/quotes/202617460/delayed TCTZF -3.78% ) as a possible partner for Vivendi’s Universal Music businesses, as well as KKR /zigman2/quotes/206126495/composite KKR -1.54% .
“If you want to get radical, could Apple /zigman2/quotes/202934861/composite AAPL -0.14% , Amazon /zigman2/quotes/210331248/composite AMZN -1.24% or Spotify /zigman2/quotes/207488629/composite SPOT -3.00% be interested? This would marry content and distribution. We are in an environment where so many interesting and creative solutions will happen as media companies continue to transform,” he said.
He expressed admiration for Bollore SA’s long record of building value by acquiring businesses, improving them and selling them for a profit. “They are very good at transforming underperforming assets into good ones. They also [pay] bonus dividends to their shareholders,” he said.
Marcus mentioned Fiat Chrysler Automobiles as an attractive conglomerate that has been “on a diet” for many years, especially under the leadership of Sergio Marchionne, who helped put together the 2009 deal that combined Fiat and Chrysler and is widely credited with turning both business units around. Marchionne died in July, but Marcus said “he groomed an excellent team.”
Recession fears are always bad for car stocks. Here’s how Fiat Chrysler’s American depositary receipts fared last year, along with shares of General Motors /zigman2/quotes/205226835/composite GM -0.47% and Ford Motor /zigman2/quotes/208911460/composite F -0.46% :
|Company||Ticker||Total return - 12 months||Price/ consensus EPS estimate for next 12 months|
|Fiat Chrysler Automobiles NV||-29%||4.7|
|General Motors Co.||/zigman2/quotes/205226835/composite GM||7%||5.6|
|Ford Motor Co.||/zigman2/quotes/208911460/composite F||-14%||7.4|
During this same 12-month period, the S&P 500 returned 8.2%.
Those forward price-to-earnings ratios are low, especially when compared with ratios of 16.4 for the S&P 500 and 15.3 for the benchmark index’s industrial sector.
Marcus began buying shares of Fiat Chrysler in July 2018. He called Fiat’s Chrysler acquisition, in the aftermath of the U.S. financial crisis, “one of the great investments in the auto industry of all time.”
Exor NV /zigman2/quotes/205060095/delayed IT:EXO +0.27% /zigman2/quotes/205926654/delayed EXXRF -0.66% holds 29% of Fiat Chrysler’s shares and is in effective control of the company. Exor is another example of a family-controlled conglomerate that Marcus owns. It is controlled by the Agnelli family. Marcus described Exor CEO John Elkann (who is also Fiat Chrysler’s chairman) as “sort of the patriarch of the Agnelli family, but he is only in his mid-40s.”
Marcus said one of the reasons most auto-manufacturer stocks haven’t been performing well is “this view that autonomous driving will revolutionize the industry.”
“While that may be true ... Fiat Chrysler is a real cash machine,” he said.
Marcus also touted Fiat Chrysler’s ability to “get value out,” with the company’s recent sale of its car-parts business to KKR for seven billion euros as an example.
That move hasn’t done much for Fiat Chrysler’s shares, at least in the short term, but Marcus is confident the company and Exor will remain “aggressive in terms of managing their industrial assets.”
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