Vivendi Universal

(V) - Get Report

is holding the phone.

The debt-encumbered media and telecommunications conglomerate said Tuesday it would buy enough shares to give it a majority stake in

Cegetel

, beating out rival shareholder

Vodafone

(VOD) - Get Report

for control of the French telecom operator.

Assuming that Vodafone sticks to its promise that it won't try to outbid Vivendi, the deal gives Vivendi access to the annual free cash flow of 1.3 billion euros that Vivendi estimates Cegetel will generate over the next three to five years.

Vivendi's purchase signals a strategic victory for chief Jean-Rene Fourtou, who has spent most of his brief tenure disposing of assets and reducing debt, but who decided that the Vodafone-coveted Cegetel was too valuable to unload.

Following the unanimous approval of Vivendi's board, the company will spend 4 billion euros for

BT Group's

(BTY)

26% stake in Cegetel, giving it 70% ownership of the company. The purchase price will be financed by 2.7 billion euros in cash and a 1.3 billion-euro nonrecourse loan.

News of the purchase, which Vivendi had publicly entertained for weeks, nudged the company's shares lower after they'd already lost ground in the morning. On Tuesday afternoon, Vivendi's shares were trading at $15.25, down $1.03.

Despite the cash outlay, Fourtou insisted Tuesday that his company was finished with the cash flow problems created by the acquisitive ex-CEO Jean-Marie Messier. Fourtou reiterated the company's intention to sell 16 billion euros' worth of assets by the end of 2004 and reduce debt below 8 billion euros.

Fourtou also said that Vodafone blew its opportunity to gain control of Cegetel by not launching its bid until after Vivendi's liquidity crisis had passed. Had Vodafone made a "decent" offer for Vivendi's stake in August, Fourtou said, Vivendi would have accepted it.