Approximately Euro 7.1 billion of long-term debt affected
LONDON, UK, Jan. 18, 2001 -- Moody's Investors Service today confirmed the long-term senior debt ratings of Vivendi Universal SA (previously Vivendi SA) at Baa2.
This follows the completion of the merger between Vivendi SA, The Seagram Company Limited and Canal Plus SA and the subsequent announcement that Vivendi Universal has agreed to sell Seagram's spirits and wine business to Diageo plc and Pernod Ricard SA (for US$ 8.15 billion).
The upgrade assumes that the sale of Seagram's assets - which is still subject to regulatory approval - will be completed as currently envisaged. The ratings for Seagram's Swiss Franc bonds due 2085 were upgraded to Baa2 and those of its Adjustable Conversion-rate Equity Security (ACES) Units were upgraded to Baa3 (from Ba2). All of Seagram's other outstanding public debt instruments have been tendered for and the ratings (Sr. at Baa3) are withdrawn.
The confirmation for Vivendi Universal's debt acknowledges that pro forma for the completion of the sale of the Seagram drinks business, the media and communications business within Vivendi Universal will be moderately geared.
Expected net proceeds from the sale exceed Seagram's September 2000 on balance sheet net debt of US$ 7.4 billion (including ACES) and the bulk of Vivendi Universal's pre-merger debt is owed by its 72%-owned, independently-quoted Vivendi Environment unit (rated A3). For rating purposes, Moody's assumes effective management and financial separation between Vivendi Universal's media and communications activities and Vivendi Environment, which is active in water and wastewater treatment, transport and waste and energy management services. Moody's notes that Vivendi Universal does not currently intend to provide separate accounts for its media and communications assets.
Moody's does not view Vivendi Environment as core to the activities of Vivendi Universal and expects further dilution of its shareholding in Vivendi Environment over the medium term. This, together with potential proceeds from the disposal of Vivendi Universal's 23.4% stake in BSkyB, mandated by the EU's competition commission over the next two years, will create additional financial flexibility for Vivendi Universal.
The confirmation also acknowledges that the combination of Seagram/Universal's media assets, which include the global leader in recorded music and one of the largest film studios in the world, with Vivendi's existing media assets, such as publisher Havas and Canal+'s leading position in European pay television, creates a strong global media player which also has a strong position in the French telecommunications market. It assumes that Vivendi Universal and Vodafone will remain committed to their joint venture to expand Vizzavi, the multi-access internet portal designed to capitalize on the premium content to be made available by the Universal units.
Vizzavi is one of the cornerstones of Vivendi Universal's strategy, providing the kind of wide access to a large European subscriber base of mobile phone users that it can not offer in its own right. Moody's expects that Vivendi Universal will aim to broaden its distribution base, particularly in the US, through commercial agreements and alliances.
While management's main near-term focus will be on integration, Moody's believes that Vivendi Universal is likely to make opportunistic strategic acquisitions or investments, such as the recent acquisition of a 35% stake (for Euro 2.4 billion) of Maroc Telecom or the likely exercise of an option to acquire an additional 7.5% stake in Cegetel, its telephone subsidiary, from Vodafone which would increase ownership to 51.5%. Moody's expects that in the near-term Vivendi Universal's internally generated cash flows will not be sufficient to cover heavy capital expenditure requirements, notably for 3rd generation mobile phone networks at SFR, Cegetel's mobile phone subsidiary, Vizzavi and next generation set top boxes at Canal+. However, potential sales from the Vivendi Environment and BSkyB stakes as well as number of announced disposals are likely to counterbalance those outflows, preserving some financial flexibility for acquisition activity.
Given the scale and scope of the merger Moody's believes that Vivendi Universal faces significant integration challenges and achieving synergy targets of an additional Euro 420 billion in EBITDA from cost savings and Euro 220 million from additional revenues (together 20% of 2000 expected EBITDA) appears ambitious. Moody's also notes that the business model for media content distribution via mobile communications devices, a strategic focus for Vivendi Universal, remain untested and fully functional third generation mobile will not be available for at least a couple of years.
Vivendi Universal has successfully tendered for the bulk of Seagram's public debt. The upgrades for the remaining instruments reflect the benefits of Seagram's integration into a stronger, higher rated entity and also takes into account the relatively limited amount of debt that remains outstanding. Moody's notes, however, that there will be no expicit support for Seagram's obligations by Vivendi Universal. Moody's expects that ultimately only the SFR 250 million bond due 2085 will remain outstanding, as Seagram has indicated that it will tender for the ACES later on this year.
Vivendi Universal SA ratings confirmed are: - senior unsecured ratings at Baa2
The Seagram Company Limited ratings upgraded are: - the rating of the SFR 250 million of Swiss Bonds due 2085 to Baa2 (from Baa3) and the rating for the $1billion of Adjustable Conversion-rate Equity Security Units to Baa3 (from Ba2).
All other ratings for Seagram are withdrawn.
Vivendi Universal SA is a globally operating media and communications group with headquarters in Paris, France.
