Vivendi Update

Vivendi CEO says that its future lies in its content and media businesses and that it may announce the sale of its telecom units at its next annual shareholder meeting in April.

Also of note from this article is that the CEO estimates SFR to be worth 20 billion Euros by itself, or approximately $26.22 billion.  That estimate is 5 billion Euros more than the 15 billion Euros I estimated SFR to be worth in my latest sum of the parts valuation on Vivendi.

I think the CEO’s estimate of what SFR is worth is a bit optimistic, but if true that means that with Vivendi’s current market cap at $28.2 billion that the market is currently recognizing that Vivendi’s other assets are only worth a combined $2 billion.  We know this cannot be true because Vivendi’s 60% stake in $ATVI is currently worth $7.44 billion just by itself.  If SFR is really worth 20 billion Euros that means that the market is massively undervaluing Vivendi as a whole.

If I were to apply the CEO’s estimate of SFR’s value to my sum of the parts valuation that brings the value per share of Vivendi up to $42.45 per share, or $28.66 per share after subtracting debt and still not including UMG.

Vivendi’s new CEO may think that SFR is worth 20 billion Euros and as a shareholder I hope they are able to sell it for that price, but I am not counting on it, and I still think Vivendi is undervalued.

An Updated Sum Of The Parts Valuation of Vivendi, Buying More Shares, Also a Brief Update on $CMT

An Updated Sum Of The Parts Valuation of Vivendi

While I am waiting for Dole’s next quarterly report to come out so I can finish my updated valuations and analysis of it, I have been researching some new companies and reanalyzing Vivendi and Core Molding Technologies since new information has come out about both.

After revaluing CMT with updated quarterly numbers it is still selling at a very good discount to my estimate of intrinsic value and I may buy more shares at any time after hearing specifics from CMT management about how Navistar’s problems are affecting it.

When I did my first sum of the parts valuation of Vivendi in July I had no information or very limited information about the values of its subsidiaries: GVT, Canal+, SFR, and Universal Music Group.  Since that time some information has come out about three of those, which has helped clarify the sum of the parts valuation quite a bit.

Vivendi is still seeking to spin off or sell some of the below companies to unlock value in its shares.

  • An estimated sale price for SFR if Vivendi were to find a buyer is at 15 billion Euros
  • Canal+ 20% estimated price that Vivendi does not own has a conservative estimated IPO price of $900 million.  Vivendi owns 80% of Canal+ meaning conservatively its estimated stake in Canal+ has a price of $3.6 billion.
  • Vivendi is seeking 5.5 billion Euros for its 53% stake in Maroc Telecom.  Vivendi’s current 53% stake market price in Maroc Telecom is worth 4.72 billion Euros or $6.02 billion.
  • Vivendi owns 60% of Activision Blizzard which is currently worth $7.44 billion at market.
  • Vivendi is seeking at minimum 7 billion Euros for GVT.
  • I still cannot find any reasonable estimate of value for Universal Music Group so at this point I will still leave this out of my estimates.

Adding all of the above together and converting everything to US Dollars gets us to a total estimated price of $46.13 billion.  Vivendi’s numbers of shares are still 1.242 billion.

  • $46.13/1.242=$37.14 per share.

For the sake of being conservative and assuming that Vivendi will not be able to get the prices it wants from some sales or spin offs of some of the subsidiaries, which is already the case in a couple instances, I will knock off $7.14 from the per share estimate which gets us to an extremely conservative, probably too conservative, value of Vivendi at $30 per share, which still does not even include UMG or Vivendi’s cash and debt.

Here is my original Vivendi article from June for a comparison of the values then and now.

The $30 per share price is an absolute worst case estimate of value.  Today I bought more shares at $19.22 per share for all portfolios that I manage, meaning there is still a 36% margin of safety to my absolute lowest case value of Vivendi, and an almost 50% discount to my more reasonable estimate of value.  Neither of the two estimates even take into account Universal Music Group, Vivendi’s cash, or debt.

Vivendi now makes up about 25% of my personal portfolio.

Vivendi sale of ATVI update

Headline on Seeking Alpha this morning: Vivendi (VIVHY.PK) is reportedly shelving plans to find a buyer for its $8B, 61% stake in Activision (ATVI -5.7%), after its initial efforts failed to draw interest. Many have doubted a buyer would emerge, given the size of the stake and concerns about the gaming industry’s health. The news comes as Activision sells off on account of its Q2 report, as strong sales of Skylanders merchandise are outweighed by tepid guidance and a major drop in World of Warcraft subs.

Here is another article from Forbes on the situation as well.

http://www.forbes.com/sites/ericsavitz/2012/08/03/vivendi-reportedly-back-off-plans-to-sell-activision-stake/

Interested to see what they decide to do now.

Dole and Vivendi news, Disgusting politicians (again), and “Evidence” of a coming recession

Before I get to some valuations I wanted to post these updates and news stories since it was a busy news day yesterday.

Dole

I thought this article was pretty benign yesterday when I first read it.  It is Dole’s second quarter and strategic review update.  The second quarter about matched the “analysts” expectations and they didn’t really announce anything of major value about the strategic review, quoting:

Strategic Business Review

Deutsche Bank Securities Inc. and Wells Fargo Securities LLC are assisting the Board of Directors and management in reviewing a number of strategic alternatives. The company is currently evaluating prospective transactions and options for a number of the companys businesses and has been in discussions with numerous third parties who have expressed interest in select businesses. For the worldwide packaged foods business, the company is exploring a possible sale transaction as well as a possible spin-off of this business to current Dole stockholders. The company is also exploring a possible separation of the worldwide packaged foods business in combination with Dole operations in Asia, into a stand-alone, primarily Asia-based company either through a possible joint venture with third parties interested in partnering with Dole or through an initial public offering in Asia. All of these alternatives are intended to enhance shareholder value. The company believes it is on track to achieve one or more of these possible transactions, or any other transaction in connection with the strategic review, by the end of the year. However, there can be no assurances that the company will pursue or complete any of the strategic alternatives that are currently being reviewed or any other transaction. The company intends to disclose developments with respect to the progress, if any, of the strategic review process at such time as the company determines that further disclosure is appropriate or where possible definitive agreement terms require disclosure.

 

They have been saying pretty much the same stuff for a few months now so I was surprised to see this morning that Dole is up more than $1 per share or about 11%.  Glad I bought more shares for some accounts I manage.  Unfortunately, I still have not been able to buy shares for my personal account, waiting for money to be available to put into the account, ugh.

Vivendi

Something surprising from Vivendi came out yesterday also.  This article talks about how Vivendi is allegedly looking to sell GVT, its Brazilian telecom subsidiary.  I was surprised to see this because I remember reading somewhere that they would not sell GVT, that they were planning on building around them.

In my opinion, GVT is the best long term subsidiary for Vivendi, it has the greatest upside potential, it is in a growing country that wants better telecom.  But it also is going to have a lot of expenses due to upgrading their telecom network, which might be one reason why they are looking to sell.

Vivendi must either be getting some pretty good offers for GVT, or they are having a lot of problems selling ATVI.

Disgusting politicians, again

This article is about how Eric Cantor, or someone from his office, changed language in the STOCK Act that was passed in congress earlier this year to stop insider trading on Capitol Hill.

The language that was changed would now make members of the politicians families exempt from the law.  After having this brought to their attention there is now “outrage” and they are now “working to change the law back to what it was originally intended to be.”

Disgusting politicians.

Signs of the coming recession?

First up is an article that talks about how South Korea is going through another banking crisis.

Second is an article that gives “Overwhelming Evidence of a Coming Recession” here in the US.

I will leave it up to you to decide whether you think a recession is coming or not.

Next up will be some of my new valuation techniques I have been learning

More Activision Blizzard and Vivendi news, and a Warning from the CFA Institute

More Vivendi and Activision Blizzard news

I thought this article was interesting, mainly because I have never thought of this possibility.  The article talks about how Activision Blizzard could buy its own shares back from Vivendi, instead of Vivendi spinning off or selling ATVI to a third-party.  It speculates that because Vivendi is having trouble selling Activision, and since ATVI has about $3 billion in cash and almost no debt that they could finance the rest of the transaction.

To me this makes zero sense from both companies perspectives.

  • For Vivendi they would most likely not get the premium on the shares that they are looking for, meaning they would not be able to pay down their debt to the levels they would want.
  • For Activision this would mean they would lower their cash hoard, and have to leverage up their balance sheet just to make the transaction happen.  Seems like a loser to me on all accounts.

I am interested to see if anyone has any differing thoughts on this possibility.

Here is an overview of the gaming industry and the profitability of each company.

Three things surprised me about this graphic: 1) That Gamestop is making as much money as they are.  2) That ATVI was behind Nintendo, Namco Bandai, Sega, and only slightly ahead of EA in terms of profits. 3) That Zynga is making over $1 billion in profits.  Most of their games are free to play on Facebook aren’t they?  I do not know much about Zynga, I have never played any of its games, and only heard of a couple of them, so if anyone else has information on them could you please let me know.

A Warning from the CFA Institute

This article talks about decision making errors that could be hurting your investment performance and talks about five active thinking strategies.  Some pretty interesting thoughts.

My next post will be a mini review of Valuation: Measuring and Managing the Value of Companies