The Deal: Vivendi Rejected Softbank's Offer for Universal Music

NEW YORK ( TheStreet) -- French media and telecommunications group Vivendi could face new breakup pressure after it emerged Friday, that Japan's Softbank had about three months ago offered $8.5 billion for Vivendi's Universal Music Group but had been rejected.

News of the proposal first appeared in the Financial Times and was later reported by outlets including The New York Times. Vivendi spokesman Jean-Louis Erneux declined to comment.

One source said the company "would not entertain such an offer as their whole strategy is based on media and content." But the offer could pile pressure on Vivendi chairman Jean-Rene Fortou to extend its telecoms-focused disposals program to media interests. It comes as Daniel Loeb's Third Point LLC hedge fund wages a campaign to get Sony ( SNE) to split off its entertainment division.

The reported $8.5 billion offer, while as much as $2 billion more than some analysts' valuation for Universal Music, compares with an $8.1 billion price tag that Liberum Capital Ltd. analyst Ian Whittaker puts on the business.

"There are two ways to look at this from an investors' standpoint," he said. "The negative way is to say that if they were presented with an $8.5 billion cash offer and didn't take it, are they really going to do radical restructuring?" he said. "The other way suggests that their assets have greater value than people had expected."

He doesn't expect Vivendi to sell the business.

"If you are focusing on content, music -- you would think -- would be a core part of that," he said. "The music industry is starting to grow again very slightly. There are many more music subscription services so there are a lot more deals out there than there have been in the past. Margins tend to be quite high on these revenue streams."

The proposal would have been made before Softbank in June sweetened its agreed bid for Sprint Nextel ( S) to $21.6 billion, forcing Charles Ergen's Dish Network ( DISH) to retreat.

It would also have come about a year after Fortou declared a review of all of the conglomerate's operations with "no taboos." Vivendi as a result decided to strengthen its media and content operations, while maximizing returns from telecoms, but little corporate action has taken place to date. Vivendi failed to offload Brazilian telecom unit GVT, though is still trying to sell its stake in Maroc Telecom. In April it disclosed talks with two bidders, Qatar Telecom QSC and Emirates Telecommunications, for the stake, which is worth about $6 billion.

Vivendi considered a sale of Société Française de Radiotéléphone, or SFR, but now appears to be heading toward an initial public offering for France's No. 2 mobile phone company. In May, it split the chairman and CEO roles, appointing head of telecommunications strategy Jean-Yves Charlier as chief executive officer.

Whittaker, a buyer of Vivendi stock, is optimistic that the company's gradual restructuring will boost its stock and draws parallels with a corporate overhaul between 2002 and 2007, during which the Paris company returned to favor with investors.

Vivendi had just under 29 billion euros ($38 billion) of revenue in 2012. Universal Music accounted for 4.54 billion euros of that total and 525 million euros of Vivendi's group Ebita of 5.28 billion euros.

Vivendi's other media interests include video game company Activision Blizzard and pay-TV company Canal Plus Group. Vivendi had 13.4 billion euros of net debt at year-end.

-- Written by Laura Board in London

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