Vivendi has struck a deal to buy Vodafone's 44 per cent stake in France's second-biggest telecom operator SFR for €7.75 billion, giving it full control of its most lucrative unit.
Vivendi said it would also pay Vodafone an extra €200 million, reflecting the generation of cash between January and July 2011.
The deal caps months of talks between the two telecom giants and puts an end to their roughly decade-long partnership in Europe's third-biggest telecom market in terms of revenue.
With the accord, Vivendi CEO Jean-Bernard Levy delivers on his top M&A priority, creating a new-look Vivendi with higher cash flows, more exposure to telecoms and its mature home market of France.
"The transaction will create a significant increase in Vivendi's adjusted net income, enabling us to raise the dividend to our shareholders," said Mr Levy in a statement.
For Vodafone, the SFR deal is the largest sale it has done to date as part of its strategy to sell the minority stakes it does not control and retrench after a decade-long international expansion.
Responding to investor pressure to clean up its portfolio, Vodafone has already sold its minority stake in China Mobile and begun a sale process of the nearly 25 per cent it owns of Poland's Polkomtel.
Vivendi and Vodafone agreed on a price that puts SFR at an enterprise value of 6.2 times 2010 EBITDA.
In its statement, Vodafone said it would return €4.5 billion of the net proceeds to shareholders, or nearly 60 per cent, by way of a share buy-back. The rest of the proceeds would go to reducing the group's debt.
For Vivendi, the price tag for SFR is also likely to allow it to keep its current credit rating, something its CEO had long pledged to preserve. Fitch Ratings earlier this year said it could pay up to 6.5 times EBITDA without affecting its rating.
Vivendi will pay for the SFR deal in cash, using proceeds from selling its 20 per cent holding in NBC Universal and the settlement from an ownership dispute over a Polish telecom operator.
Both companies said in separate statements that the deal was expected to close by the end of June 2011 and was subject to regulatory approval.
They also said they would continue to work together as "commercial partners" for three years, in a reference to what is likely a roaming agreement between the two groups.
