Morningstar | Vivendi’s Troubles in Italy Drag On; 3Q Revenue Meets Expectations
Vivendi’s misadventures in Italy slog onward as the firm’s legal issues with Mediaset will extend into 2019. While Vivendi's third-quarter trading report was relatively positive, with revenue in line with consensus, we remain concerned about the investments in Italy and the firm’s reluctance to back down. We are maintaining our no-moat rating and fair value estimate of EUR 19. With shares trading slightly above our fair value, we recommend waiting for a pullback before investing in this high-uncertainty name.Vivendi’s legal battles with Mediaset are likely to stretch out until at least the second quarter of 2019, as the court date for the lawsuit was recently set for March 12. Neither side appears to be interested in settling, according to statements from Mediaset's lawyers. As a reminder, the dispute stems from Vivendi backing out of a July 2016 agreement to purchase Mediaset’s pay-TV unit, Premium, as a part of a stock swap between the two firms. Vivendi tried to renegotiate the deal terms after an examination of the Premium books turned up “significant differences†from the original statements. Mediaset refused the new terms and sued for EUR 3 billion in damages. Vivendi also made a series of hostile stock purchases, building up a 28.8% stake in the Italian firm which is still controlled by the family of former Italian Prime Minister Silvio Berlusconi. We expect that the loser of the case will appeal, which may cause the dispute to spill into 2020.
Third-quarter revenue for the firm improved 6% year over year to EUR 3.4 billion, with Universal Music continuing to drive growth. UMG was up 14% organically as streaming revenue growth (up 36%) more than offset the declines in downloads (down 25%) and physical (down 16%) sales. The firm has started the process of selecting five to seven banks to help with the sale of up to 49% of UMG to a strategic partner. Revenue growth at Canal+ was flat as the French operations continue to suffer from subscriber losses.
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