Vivendi Rejects Group Breakup, Hikes Outlook"

PARIS -(Dow Jones)- Vivendi, Wednesday said it has rejected a shareholder's proposal to break up the company, adding that its conglomerate strategy should generate higher earnings this year than previously forecast.

The French media-to-telecoms group said its supervisory and management boards studied the cooperation request presented by Monaco-based Sebastian Holdings, which aimed to dismantle the group, and "unanimously rejected this alernative."

Vivendi argued that the plan was "based on economic and legal hypotheses that are unrealistic."

The proposal by Sebastian Holdings, led by Norwegian corporate raider Alexander Vik, involved a sale of the company's telecom and pay-television operations and a leveraged buyout of the remainder of the assets, a person close to the situation told Dow Jones Newswires.

At 1143 GMT, Vivendi shares were up EUR1.10, or 3.9%, to EUR28.90.

Vivendi, which said that Sebastian Holdings holds 1.1% of its shares, declined to unveil the exact proposal. Neither Sebastian Holdings nor Vik was immediately available for comment.

The rejection of the breakup proposal "was in line with our view," Bear Stearns analysts wrote in a research note, adding that they believe that Vivendi should embark on a buildup of the company, rather than a breakup, to enhance its value. Bear Stearns rates Vivendi at overweight.

Vik's move comes as media conglomerates such as Vivendi and its larger, U.S.-based peer, Time Warner, have attracted criticism that their incorporation of content and distribution has failed to generate the growth that the individual businesses could generate on their own.

The French company - whose operations include pay-TV broadcasting, computer gaming, music producing and wireless services - made its comments as it reported a 41% rise in first-quarter net profit, boosted by strong growth at its music and games businesses. It also raised its full-year earnings outlook.

Net profit at the Paris-based company rose to EUR707 million in the first three months of 2006, up from EUR501 million a year earlier, well ahead of a Dow Jones Newswires poll of analysts who expected EUR561 million.

The company announced its first-quarter sales numbers in April, unveiling a 5.7% rise to EUR4.77 billion from EUR4.51 billion a year earlier, boosted by strong growth at Maroc Telecom and solid performances at its games and music divisions.

The company said it now expects 2006 adjusted net profit to grow by 16%, amounting to about EUR2.4 billion, compared with a previous guidance of 11%-13%. It projects adjusted net income of EUR3.5 billion to EUR4 billion in 2011.

Adjusted net profit excludes certain charges such as impairment of goodwill and income from discontinued operations.

Operating profit in the quarter rose to EUR990 million from EUR921 million in the first quarter last year, as UMG - one of the world largest's music companies by sales - posted a solid operating profit, more than doubling to EUR90 million. A U.S. court settlement inflated the number by EUR50 million, the company said.

Bestsellers in the quarter were new album releases from Andrea Bocelli, Jack Johnson and Prince, as well as the debut release from Ne-Yo, which topped the U.S. album chart in March.

Vivendi's video games unit, which Vivendi had earlier tried to sell, posted another strong performance, with operating profit more than doubling to EUR23 million, still boosted by the success of the game World of Warcraft, which had 6.25 million players at the end of February.

Operating profit at Moroccan fixed-line and mobile business Maroc Telecom grew 15% to EUR207 million on sales growth and costs control. French wireless business SFR posted an 11% operating profit rise to EUR666 million, reflecting a growth in network revenue and lower costs.

But operating margin at Vivendi's pay-TV division Canal Plus Group was down 75% to EUR33 million because of higher soccer-content costs.

Vivendi said it has decided to further pursue its strategy of combining its media and telecom businesses, "one which is the best positioned to create value for Vivendi's shareholders."

U.K.-based wireless giant Vodafone Group, which has a 44% stake in SFR, declined to comment on speculation that it could buy Vivendi's majority stake in the French wireless operator, or swap its stake into a smaller stake in Vivendi.

Company Web site: http://www.vivendi-universal.com

-By Laetitia Fontaine, Dow Jones Newswires; +33 (0)1 40 17 17 40; laetitia.fontaine@dowjones.com

(Pierre Briancon and Brian Lagrotteria contributed to this article.)

(END) Dow Jones Newswires "

Posted to the site on 17th May 2006