S&P said that the CreditWatch reflects the possibility that it could lower their assessments of the group's business risk or financial risk profiles. Their concerns and lack of visibility on the group's future credit profile stem from its announced potential strategic decisions and amid ongoing critical changes occurring at top management level.
S&P also thinks that potentially intense shareholder pressure could precipitate credit dilutive business or financial initiatives within the group. In addition, they are still unclear about decisions that could be taken on SFR, Vivendi's telecommunications subsidiary, to soften the impact of heightened pricing competition following the recent entry of a fourth competitor in France's mobile telephony market. SFR is Vivendi's top contributor to total EBITDA.
On June 28, 2012, Vivendi announced that its CEO and Chairman of the Management Board was stepping down owing to diverging strategic visions. The group further indicated a new CEO of SFR had been appointed, in lieu of a previously announced new CEO who was to take office in August. On June 25, 2012, the group had announced that its Supervisory and Management Boards had gathered to review the group's strategic orientations.
S&P said that while it acknowledges that Vivendi has frequently reiterated its commitment to the current 'BBB' rating, they are unclear at this stage on the strategic decisions that the group might take. They are also uncertain on how Vivendi's business portfolio will evolve, and what the possible ramifications would be for the assessment of Vivendi's business risk profile.
In addition, S&P isn't ruling out credit dilutive, shareholder friendly initiatives if Vivendi sells assets. While unrelated to the matters outlined above, the group also recently announced an unexpected court ruling requiring it to pay EUR765 million in damages in the USA. The outcome of this litigation is uncertain at this stage, however, and Vivendi has said it would appeal.
S&P thinks that Vivendi's key financial metrics will deteriorate markedly in 2012, owing to the combination of pending acquisitions, the cost to acquire 4G spectrum, higher cash tax outflows because of income tax regulation changes, and their anticipation of a high-single-digit drop in overall EBITDA. Taken together, they think Vivendi would have no headroom at the current rating level for other cash outflows.
S&P expects to resolve the CreditWatch within the next three months, as it seeks to obtain greater clarity on Vivendi's future business configuration, the extent and impact of any shareholder returns following any asset disposals, and its long-term financial policy.
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