I hate to admit it, but I am somehow a Seth Klarman “groupie” after reading his “margin of Safety” a couple of years ago.
So when ever Baupost reveals a new position, I stop everything else and try to find out why they did it (see my Microsoft analysis).
So I was quite surprised that Klarman now invested in Vivendi, the French media company.
In the hedge fund’s 2011 annual letter, they disclosed buys in private companies and mentioned recent purchases in Europe, without giving any names. The letter mentioned an expansion of the London office, as the hedge fund has been finding value due to large selling in Europe.
However, we have just discovered that Baupost’s largest disclosed equity holding (at least at the time of the purchase) was Vivendi SA (EPA:VIV) (VIV FP). The purchase was recently disclosed in Vivendi’s 2011 annual report.
Baupost owned 25.5 million shares as of February 29th, 2012; then worth close to $530 million using a ratio of 1.3:1 for euros to dollars. The $550million figure comes from looking at where Vivendi’s shares traded in 2011 and early 2012.
In the back of my mind I have always booked Vivendi as just another shitty media stock who spends all the money on stuopid acquisitions, however Klarman sticks to his strategy of buying cheap and struggling companies instead of “beautiful expensive” companies.
One of the reasons why they bought Vivendi are relatively clear: Vivendi generated a ton of free cashflow over the last few years. Some of this cashflow made it as dividend to investors, but most of this (plus some) went into acquisitions.
Lets look at some historical data:
|
EPS |
BV |
BV tang. |
FCF/Share |
Dvd |
net Debt/share |
| 2002 |
-21.43 |
13.09 |
-19.68 |
0.49 |
1.15 |
11.55 |
| 2003 |
-1.07 |
11.13 |
-16.47 |
2.18 |
1.15 |
10.55 |
| 2004 |
2.57 |
14.40 |
-2.16 |
2.92 |
0.00 |
4.55 |
| 2005 |
2.66 |
16.27 |
0.50 |
2.14 |
0.60 |
3.25 |
| 2006 |
3.50 |
17.23 |
2.13 |
2.43 |
1.00 |
3.53 |
| 2007 |
2.26 |
17.47 |
-0.84 |
2.81 |
1.20 |
4.41 |
| 2008 |
2.23 |
19.34 |
-6.73 |
2.81 |
1.30 |
7.00 |
| 2009 |
0.69 |
17.92 |
-8.17 |
3.53 |
1.40 |
7.69 |
| 2010 |
1.78 |
19.44 |
-6.85 |
2.46 |
1.40 |
6.52 |
| 2011 |
2.16 |
15.61 |
-9.95 |
2.43 |
1.40 |
9.57 |
| |
|
|
|
|
|
|
| Sum/Delta |
|
|
|
24.20 |
10.60 |
-1.98 |
From a free cashflow perspective, Vivendi generated an impressive 2,40 EUR free cashflow per year. Howver, less than half of it was distributed as dividend and a small amoutn was used to reduce debt.
Tangible book as one could expect for a media company is negative, but for a media company I would accept it to a certain extent. Debt is relatively high, but even including the debt load, the total valuation is quite low at 3.7 EV/EBITDA.
The share price looks really really ugly:
So based on yesterday’s post about momentum, this would be a clear “no” or better “non”.
Some more interesting points:
1. Vivendi does not have a majority owner
2. A couple of their subsidiaries are listed. That makes an interesting “sum of parts”:
– 61% in Activision are worth around 6.5 bn
– 53% of Maroc Telecom are worth around 5 bn EUR
A very simplistic comparison with Vivendi’s total marekt cap of 14 bn shows a maybe interesting situation.
3. Acquisitions:
– Vivdendi paid almost 8 bn EUR in 2011 for the 40% they did not own in its French Telecom subsidiary. However, after Iliad SA launched its aggressive enntrance into the French mobile market this amount was most likely much to high.
– in parallel, Vivendi is bidding for EMI and has bought several other companies, like a tv station for 350 mn EUR last year.
One has also to keep in mind that Klarman is managing around 25 bn USD, so the Vivendi position is for him a 2% postion, similar to News Corp, HP and BP. And not all of his invetsments are winners, despite the “Margin of Safety”.
I am howver not sure if the Iliad scenario was included in his “Margin of Safety” considerations.
Nevertheless it is very interesting situation as this is basically his first major contintental European Investment (despite a 5 mn EUR stake in a samll fFrench company named Chargeurs SA).
For the time being I nevertheless prefer to watch this from the outside as for me Vivendi is still a company which generates a lot of free cashflow but spends most of it for stupid acquisitions.
value and opportunity 