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Holly LaFon
Holly LaFon
Articles (8165) 

Seth Klarman Buys 25.5 Million Shares of Global Media Conglomerate Vivendi

April 17, 2012 | About:
Seth Klarman, founder and president of the Baupost Group which has returned 20% annually to investors, bought a stake in Vivendi (VIVHY), a major subscription-based digital entertainment company. Klarman’s Baupost Group owns 25,500,000 shares of Vivendi, or 2.04% of the company, as of Feb. 29, 2012.

Vivendi’s stock declined almost 42% over the last year and 22% year to date. In 2011, the company’s adjusted net income increased 9.4% year over year due to a turnaround at its Universal Music Group and excellent performance of Activision Blizzard and GVT, as well as the purchase of the remaining shares of SFR, its mobile-phone unit, from Vodafone in June.

Earlier in the year, Vivendi sold for more than $30 per share, higher than 2011 book value of $24.65 per share. The company also has a dividend yield of 9.9% and generated almost $5 billion in cash flow. It trades for a low P/E of 5.

On April 9, Klarman gave up on a large investment in Targacept (TRGT). He had purchased 6 million shares of the company at about $11.50 per share in the fourth quarter of 2011, and took at least a 30% loss when he sold out in the next quarter. The company’s share price had dropped significantly on news that it revised top-line results from its Phase 2 clinical study of asthma drug TC-6987.

This year Vivendi is planning to begin VOD service in Germany which could rapidly expand across Europe. It wants to set up a Netflix (NASDAQ:NFLX)-style service where users pay a flat fee for unlimited access to streaming video content. The company is also seeking a replacement for CEO of SFR, its French mobile business, after it lost numerous clients to new competition.

Rating: 4.4/5 (17 votes)


Batbeer2 premium member - 5 years ago

Henry Schacht was way ahead of Seth on this one.
Vgm - 5 years ago    Report SPAM
"Henry Schacht was way ahead of Seth on this one."

Depends how you define "way ahead". Seth waited to swing and got a much better price.

I'd be interested in Henry's views on why Vivendi is down so much of late.
Batbeer2 premium member - 5 years ago
With investing, the early bird sometimes gets eaten by the cat ;o)

I too would appreciate an update by Henry.
Hschacht - 5 years ago    Report SPAM
My first reaction was to recall a quote I like (not sure who said it): "Being ahead of your time is indistinguishable from error".

My second thought was... that's why he's Seth Klarman and I'm not.

All this said, I see the beauty in Vivendi (especially at current prices) than I do in News Corp (which Klarman owns & I used to own) and the biotechs he likes to play with, which are well outside my margin of safety.

The thesis on Vivendi is unchanged. It is a mass of assets. And people are more focused on where it is (France/Europe) rather than WHAT it is.

I continue to hold Vivendi and I welcome Klarman to the fold. May he be the catalyst that I was/am not.

Vgm - 5 years ago    Report SPAM
I think you do yourself an injustice Henry - being ahead of your time can also be a catalyst or inspiration for others. The present discussion thread may be a case in point.

Klarman talks about how he sometimes can anticipate a third party being forced to sell a position in a particular stock, and that he can then capitalize on the price drop.

I had a question if I may: was there a particular reason why Vivendi suddenly sold off at the end of February and has continued to drop?
Hschacht - 5 years ago    Report SPAM
Vivendi bought SFR from Vodafone and it appears that competition in the French telecom market is tougher than originally thought. Macro issues + a new market entrant + regulation. The company's earnings did not meet expectations and they took a cautious tone about the year ahead.

A classic case of relative numbers trumping absolute numbers.

The cash keeps rolling into Vivendi... and it is amazing to see people ignore it.

Tonyg34 - 5 years ago    Report SPAM
Henry's consistently early, its on the list of reasons I like(d) his articles so much - you had time to think about it and still get in at or below the price at recommendation.
Glavacem - 5 years ago    Report SPAM
Guys, does vivendi only pay a div once per year?

sorry, im having a hard time getting info.
Hschacht - 5 years ago    Report SPAM
Dividend is once a year... go to the company website... not hard to get information, but you can't rely on Google Finance, etc. Venture out to the wider world of investor relations!

"Consistently early"... time to quit writing and start working on my timing!
DocMoney - 5 years ago    Report SPAM
Can't buy it... Folio does not have it.
Glavacem - 5 years ago    Report SPAM
I cant access presentations off their website, the files wont download....:)

Will have to try again another day.
Josh Zachariah
Josh Zachariah - 5 years ago    Report SPAM
Reading this on the Vivendi annual report got me a little concerned:

2.2.12. ADR (American Depositary Receipt) Program

On January 10, 2011, the level 1 sponsored ADR program, which had been maintained with Deutsche Bank since December 15, 2008, terminated.

As of the date of this report, Vivendi does not sponsor any American Depositary Receipt (ADR) program for its shares. Any existing ADR program is “unsponsored” and

is not connected in any way to Vivendi. Vivendi denies any responsibility or liability regarding any such program

Is this just legal protection on their behalf or should US investors be concerned about these ADRs?
Josh Zachariah
Josh Zachariah - 5 years ago    Report SPAM
And if anyone can elucidate for me the difference between the vivendi shares "vivef" and "vivhy" that would be greatly appreciated. Both show up on scottrade, one with a higher dividend yield than the other.
Batbeer2 premium member - 5 years ago
>> I think you do yourself an injustice Henry - being ahead of your time can also be a catalyst or inspiration for others. The present discussion thread may be a case in point.

Manuel12345 - 5 years ago    Report SPAM
Vivendi sold off probably because Iliad (brand Free) entered the French mobile market in January, with prices even more aggressive than expected, forcing other Mobile opeerators to adjust -France Tél, Bouygues and SFR (Vivendi).
Power of Incentives
Power of Incentives - 5 years ago    Report SPAM
Iliad (Free) was much more aggressive with its price-cutting that the competitors imagined.

Which amazes me. And is probably the reason why SFR boss "left".

other reason for the fall in prices:

- vivendi board said a few times last year that after getting 100% ownership of SFR, they'll be able to increase the dividend (1.4 euros at that time)

- well well, surprise. finally, it's been cut to 1 euro because of the entrance of the new competitor.

- they pretend to make up for it with a "FREE" share for every 30 shares owned. where the free shares will come from? DILUTION of course.

of course, current prices are impossible to resist, I added to my position as well (5% of my portfolio now), but management's competence or at least honesty is quite an issue!

by the way, a French "guru" also couldn't resist the prices.

after taking more than 1% of the company in the past few months, Bollore just sold 2 TV channels to Vivendi in exchange for (undervalued???) vivendi shares (DILUTION again...)

and Bollore is a smart investor with quite a track record and a very very interesting holding company. (Africa...)
JHRandolph premium member - 5 years ago
Thanks for your thoughtful write-up on this last year, Henry.

Obviously a compelling value on a trailing basis, by any and all traditional valuation methods. To follow up on Manuel's comment, though, has anyone done any work on the potential go-forward EBITA impact of the ongoing price war between Iliad and the incumbent mobile operators in France? (For those who may not know, Iliad offered an all-you-can eat mobile plan in France for 19.99 euros a month in January, which has rattled some cages).

SFR generated 39% of Vivendi's EBITA last year... how much of a haircut will they take if (worst case) the low-end business shifts completely to 19 Euros a month, and mobile pricing in general is compressed across the board? I saw that SFR responded pretty quickly to Iliad's challenge, lowering prices of some plans by 25 to 33%....

Here's one (admittedly crude) way to look at it. Even if SFR's EBITA is reduced by 50% from 2011 totals-- i.e., from 2.27B euros to 1.1B and change-- VIV.PA still trades for less than 6X EV / EBITA.

SFR has other defenses; Iliad has no brick and mortar stores, will not subsidize phone purchases, etc... but it's clearly a concern of the market (and, one would hope, an opportunity...).

Cdubey - 5 years ago    Report SPAM
Can someone tell me this: how was buying shares of Targacept (TRGT) an "investment" ? Will it not be called speculation ? If the selling depended on the result of the Phase II trial then definitely it was not investment per se. Anyone has an insight here ?
Superguru - 5 years ago    Report SPAM
Klarman does many stock investments in which results are binary - ie. either he loses all or he hits a home run. His reasons are never clear. Looks like he goes for cigar butts and very distressed companies or biotech betting on some drug approvals. They sound like speculation. Recently he has started investing in large caps. Stocks usually are such a small portion of his portfolio that I am not sure why he even bothers. Though that is changing now with his recent large cap investments.
Vgm - 5 years ago    Report SPAM

It was analyzed and proposed as a net-net, though some of us were skeptical of how much of a margin of safety existed, precisely because there was the clinical trial wildcard.

Look back on the various discussion threads under TRGT on GuruFocus - for example

Adamcz - 5 years ago    Report SPAM
I'm having a little trouble figuring out logistically how I would make an investment in Vivendi. There are over a dozen ticker symbols from different exchanges (with different stated market caps, yields, and ratios), and the company recuses themselves from the ADR. I don't understand the implications of that - is it true ownership in the company if they deny sponsorship?

I assume there's no way to know specifically what version Seth Klarman bought?

I'm new to investing in a foreign company - any pointers are appreciated.

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