PARIS Three months ago, Vivendi's veteran chief executive Jean-Bernard Levy, under fire for a slumping stock price, said asset sales were "not taboo".
Now he has quit, the French group could be looking at a more dramatic shake-up than he could have imagined.
Video game maker Activision Blizzard and Maroc Telecom head up the list of candidates for sale, analysts and bankers said, but his successors could now also mull a Murdoch-style split of the business into a telecom and media arm.
"Look at what Murdoch announced, look at all the precedents of a well executed split, and it always releases the conglomerate discount and it creates a lot of value for the shareholders," said one source close to the matter adding while Levy had been opposed to such a move, Chairman Jean-Rene Fourtou was "much more pragmatic."
Vivendi, whose debt burden soared by roughly a third last year to 12 billion euros ($15 billion), has seen its stock price slump 13 percent this year on growing concern about competition faced by its long-time cash cow, French telecoms operator SFR.
The company, which also controls assets including Universal Music Group and Brazilian telecoms operator GVT, provided few clues as to the strategic differences that divided Levy, who is quitting after nearly a decade, and the company's board.
But there seemed little doubt that Levy had stood for keeping intact most of the empire that he had built, while the board was eager to look at ways to boost the company's stock price and slash debt.
"I have the impression that all options are open with the exception of a full split of the group, which seems less likely," said one Paris-based banker. "But certainly asset sales are likely."
While speculation swirled around Activision, in which the company owns a 60 percent stake, a split of the group into media and telecom assets, echoing News Corp's similar move announced earlier this week, also looked increasingly likely.
"It is quite likely to happen," the source said. "My feeling is that once the dust has settled, in 5 or 10 days, they will start inviting bankers to talk to them."
The source said Activision was "perhaps the asset that is going to go first", adding the company could raise money by selling blocks of the Nasdaq-listed company on the market. Levy had seen such moves as a sign of weakness, but a new management team might be more willing to break with precedent, he said.
An outright sale would be more complicated, given a lack of apparent buyers for Activision, said Wedbush analyst Michal Pachter, adding an alternative would be for Vivendi to use Activision to borrow heavily than pay a major dividend out to shareholders and spin the company off.
"If I am right that there are no buyers. I think the only option left to Vivendi is to lever up Activision's balance sheet and dividend out all of its cash, then spin the company off," Pachter said.
Analysts at Liberum Capital also said SFR itself could go on the block. But such a move would constitute a huge about-face just a year after the group bet big on the French telecoms business, spending 7.75 billion euros to assume full control of it from Vodafone.
Sources said on Thursday that Vodafone European head Michel Combes, who had been set to take the reins at SFR, would no longer make the switch, boosting uncertainty about the future of the unit, which is struggling with competition from upstart rival Iliad.
A sale of Vivendi's Brazilian GVT unit may be less likely given it is the country's fastest-growing telecom firm and indeed the fastest growing business Vivendi has at the moment.
Vivendi shares, which jumped on Thursday, rose 3.1 percent to close at 14.63 euros.
"With what is going on with the company, we can think that there will be significant changes in the outline of the group, a major modification to this conglomerate," said Yohan Salleron, a fund manager at Mandarine Gestion in Paris. "But it seems too early to buy in the sense that we have no idea what is going to happen. You do not even know what you are buying at this point."
Still, Levy's exit was greeted by various analyst upgrades on optimism that group Chairman Jean-Rene Fourtou would now move to make shareholder returns his priority, especially with the imminent return to the board of longtime activist investor Vincent Bollore.
"Given his background, we would view his arrival as a positive given his reputation for accelerating value creation via asset sales or cost-cutting," Jefferies analyst Will Smith said in a research note, speculating that Activision and Maroc Telecom, the largest telecom operator in Morocco, could be sold.
Liberum Capital's Ian Whittaker, said he viewed SFR itself as a sales candidate, acknowledging that such a move "might seem odd" given that SFR is expected to produce 38 percent of the group's profit in 2012.
Mexican tycoon Carlos Slim, who has been on the acquisition trail in Europe, boosting his stake in Dutch telecom KPN, could be a candidate to buy it, he said.
Vivendi is under pressure not just from disappointed shareholders but also from bondholders who have become increasingly worried about its growing debt, likely to be exacerbated by a U.S. jury's demand that it pay Liberty Media Corp $954.6 million in damages.
While some analysts and bankers have said a Murdoch-style split of the group could unlock value, one at Exane BNP Paribas said last month that such a move "would aggravate, not solve the debt issue, unless there is complex financial engineering".
Vivendi, rated in the mid-triple B area, has ten euro-denominated bonds outstanding, the majority of which mature over the next five years.
The group's five-year credit default swap level is currently at around 215bp, having risen by around 6bp or 3 percent on Friday morning. It stood at around 170bp at the beginning of the year.
($1 = 0.8047 euro)
(Additional reporting by Josie Cox, Guillermo Parra-Bernal and Liana Baker; Editing by Jon Loades-Carter)