Vivendi / Zain

Vivendi, the French media and telecoms conglomerate, was at pains on Monday to say it was merely “interrupting” talks about acquiring a controlling stake in Zain Africa, the African arm of the Kuwaiti mobile group. Possibly this is just a reference to the sacrosanct August vacances. But judging by the 4 per cent jump in Vivendi’s share price, shareholders are hoping negotiations remain suspended come the rentrée in September.

On paper, Zain’s Africa business looks an attractive target: its operates across big swathes of sub-Saharan Africa, one of the industry’s few remaining growth markets. The region is consolidating fast; Vodafone in May cemented control of South Africa’s Vodacom, while India’s Bharti Airtel and rival South African outfit MTN remain in talks about a potential $23bn tie-up.

Vivendi, majority owner of the number-two operator in France, wants a piece of the action, too – but not at the expense of its dividend or credit rating. Taking control of Zain, which analysts have valued at $10bn-$12bn, would therefore have required some form of rights issue. That would have been a hard sell. While Vivendi has made a success of its controlling stake in Maroc Telecom, the potential synergies with Zain looked modest, with few prospects for in-market consolidation of network infrastructure – one of the key value-drivers in telecoms deals.

The problem is where Vivendi goes from here. Jean-Bernard Lévy, chief executive, needs to find new growth somewhere to fund a dividend that Bernstein reckons should grow from €1.40 per share this year to €1.62 per share by 2011. Yet Vivendi’s core French mobile and media businesses are structurally challenged.

Cherry-picking the best of Zain’s African business may be one option, although getting a good value could be difficult if a partial sale attracts other bidders. In any case, shareholders who want exposure to Africa should simply take a stake in Zain themselves, rather than support Vivendi in paying an unjustified premium.END