Vivendi to buy Neuf-Cegetel (France's second bigest broadband provider) for EUR 4.5 billion

Vivendi broadband deal puts France Telecom and Vodafone on high alert

Vivendi upped the pressure on its rival France Télécom yesterday by unveiling a €4.5billion (£3.3billion) deal to buy Neuf Cegetel, France's second-biggest broadband provider. The media conglomerate also reiterated its desire to seize control of Vodafone's 44 per cent stake in SFR, France's second-biggest mobile operator. Vivendi owns the remaining 56per cent of the group.

The French entertainment group, which already owns 40.5 per cent of Neuf Cegetel, is buying a 29 per cent stake from Louis Dreyfus, the commodity trading group, for €34.50 a share or €2.07billion. It will then launch a takeover for the remainder of the shares at €36.50 each, valuing the total deal at around €4.5billion. The group also stoked speculation about further deals with plans to raise up to €2billion from shareholders. It said the fundraising would preserve its "strategic and financial flexibility".

Jean Bernard-Lévy, chief executive and chairman of Vivendi's management board, said he wanted to control "100 per cent of our divisions" – a direct reference to Vodafone's SFR stake. However, Mr Bernard-Levy said the British mobile operator had "indicated to us that it is not on the agenda at the moment". A spokesman for Vodafone said it was happy with the partnership as it stands. The British company has pulled out of some international markets where it had a minority holding, but France is deemed an essential part of its core European operations.

Alternative Vivendi deals could include a move to secure the 35 per cent of Canal Plus, the pay-television broadcaster, that it does not own. The Neuf Cegetel deal — which will bring the broadband group together with the SFR mobile operations - is aimed at accelerating Vivendi's push into "converged" fixed and mobile products, the hot trend under which consumers are being encouraged to buy all their home communications services from one source.

In a further blow to France Télécom, the former state monopoly, Vivendi said it would spend more than the €450million that was previously earmarked by Neuf Cegetel for investment on a "next-generation" network designed to supply super-fast broadband connections. Vivendi, which endured a brush with bankruptcy at the start of the decade, embarked a year ago on a strategy to beef up its five divisions. Earlier this month it unveiled an $18.9billion (£9.5billion) tie-up with Activision, the US computer games giant. It also brought BMG Music Publishing for $2billion and Télévision Par Satellite, its French pay-TV rival.

The Neuf Cegetel deal will be conducted by SFR and financed by a loan from Vivendi to the mobile division. Vodafone has given its backing to the acquisition. Analysts at Citigroup said there was a "reasonable chance" that SFR would have to increase its planned €36.50 offer for the remaining Neuf Cegetel shares. "We expect SFR to increase its offer if it fails to acquire the remaining minorities since without full control, SFR will struggle to implement a convergent strategy," it said in a note. Neuf Cegetel already has the second-biggest fixed network in France, carrying 25 per cent of the country's voice traffic.