By Max Colchester And Paul Sonne
Vivendi /zigman2/quotes/202179234/delayed FR:VIV +1.47% SA agreed to buy out Vodafone Group /zigman2/quotes/202862751/composite VOD -0.12% PLC's stake in a French telecommunications company, giving Vivendi full control of its biggest cash generator and helping Vodafone to clean up its sprawling portfolio.
Paris-based Vivendi agreed to pay €7.95 billion ($11.31 billion) for the 44% stake in SFR that it doesn't already own. The deal values Vodafone's stake at €7.75 billion, and the U.K. company will receive an additional €200 million as a final dividend after the deal is completed.
"This is a turning point for us," Vivendi Chief Executive Jean-Bernard Lévy said in an interview. "This will enable us to pay a larger dividend in 2012."
Vodafone said €4.5 billion of the net proceeds will be returned to shareholders in a share buyback, with the remainder of the proceeds used to reduce debt. The deal is expected to close by June, subject to regulatory approval.
Vivendi for months has been seeking full control of cellphone and Internet-service provider SFR. Vivendi has been attempting to tighten its grip over its telecom and entertainment holdings, which includes record company Universal Music and pay-TV group Canal Plus. Analysts have criticized Vivendi for what they have said is a holding structure that does little to increase its subsidiaries' revenue and adds a layer of costs.
SFR—France's No. 2 telecom by revenue, behind France Télécom SA—last year accounted for just under half of Vivendi's €28.87 billion in revenue. By seizing full control, Vivendi will have more say over the unit's strategy, potentially leading to greater cooperation with Vivendi's other businesses. Vivendi also can harness SFR's cash to pay a bigger dividend to shareholders.
"This is not a major change in strategy for us," Mr. Levy said. "We still want to be in content on all platforms."The company will not become a pure telecoms player, he said.
SFR and Vodafone will maintain certain joint operations for three years, including roaming agreements that allow Vodafone customers to use SFR's network while in France.
The sale is part of Vodafone Chief Executive Vittorio Colao 's effort to streamline his company's portfolio by selling its ragtag array of minority stakes. Vodafone last September sold its 3.2% stake in China Mobile /zigman2/quotes/200868736/delayed HK:941 +0.40% Ltd. for £4.3 billion ($6.93 billion). Two months later Vodafone agreed to sell back its interest in Japanese telcom provider SoftBank /zigman2/quotes/207303954/delayed JP:9984 +2.12% Corp. for $5 billion.
Vodafone still holds several assets it doesn't control, with the most closely watched its 45% share share in Verizon Wireless of the U.S. The holding, valued at roughly $50 billion, hasn't paid dividends in more than five years because Verizon Wireless has been servicing its debt. Though a sale of its stake to partner Verizon Communications Inc. or a merger have been seen as possibilities, Vodafone signaled last fall that it planned to wait for dividends instead of pursuing a sale or merger.
Vodafone also still holds a stake in Poland's Polkomtel SA and an indirect holding in India's Bharti Airtel Ltd.