Vodafone expected to make #8bn cash offer for French mobile group

Vodafone is preparing to make an unsolicited cash offer for SFR, the French mobile phone company controlled by Vivendi Universal, in spite of indications by advisers to Vivendi that the media group hopes to hold on to its stake.

Analysts have estimated that any offer could be in the region of £8 billion sterling (€12.6 billion). Vodafone is likely to use a $10.65 billion (€10.83 billion) unused bank facility to fund the purchase, with any shortfall made up of additional short-term bank borrowings.

Vodafone is keen to gain control of SFR because France is the only big European market where it does not have a controlling stake in its mobile operations. However, it declined to comment further.

The UK mobile operator owns 32 per cent of SFR through a 20 per cent direct stake and a 15 per cent holding in Cegetel, the French telecommunications business which in turn owns 80 per cent of SFR. Vivendi has a 44 per cent stake in Cegetel.

A formal offer could be made before the end of the month. The mobile operator is understood to be waiting for the expiry of "lock-up" rights between Cegetel's shareholders, which also include BT Group with 26 per cent and SBC Communications of the US, which has 15 per cent.

The rights, which prevent any sale of shares without the full agreement of all investors, expire on September 23rd. Although Vivendi has indicated it would like to hang on to its stake, Vodafone believes Vivendi's board will bow to its fiduciary duty and put any sensible offer to its shareholders.

However, the mobile operator could face obstacles if Vivendi seeks to increase its holding in Cegetel, an option outlined last month by Mr Jean-Rene Fourtou, chief executive.

Pre-emption and tag-along rights, which remain in force after September, allow all shareholders to increase or offload their holdings at any price that may be offered by Vodafone.

Observers believe that the two big disposals already announced by Vivendi the international assets of Canal Plus, the lossmaking pay-TV company, and US publisher Houghton Mifflin indicate that Vivendi will refocus on its interests in French media, water and telecoms.

Vivendi's keenness to hold on to SFR also reflects the strong free cashflows generated by the group. Although Vivendi does not separately report revenue and cashflow figures for its mobile arm, SFR should generate free cashflow of about €700m ($ 686 million) for the year to December 2002, according to one analyst.

Last week, Vodafone bought out Vizzavi, its internet portal joint venture with Vivendi for €142.7 million.

Vizzavi was co-founded by Vodafone and Vivendi in January 2000 with a €1.6 billion investment plan. The site aimed to provide entertainment and information content services to mobile phone users but its continuing losses made it an obvious sale candidate.