Vivendi Plans to Sell Parts of Canal Plus

In a significant first step toward redefining itself, Vivendi Universal plans to sell off unprofitable portions of Canal Plus Group and float a minority stake in the remaining French pay-TV company.

The move, part of a companywide effort to slash the French utility and media company’s massive debt, would allow Vivendi to raise as much as $5 billion while keeping control of the powerful media property.

Keeping Canal Plus in Vivendi signals the company’s interest in remaining a player in the media and entertainment industry, a source close to the board said Monday. Vivendi’s French board members, in particular, have been adamant about protecting Canal Plus, France’s leading underwriter of French cinema. Vivendi holds a 49% stake in the publicly traded company.

This month, Vivendi replaced Chairman Jean-Marie Messier with French businessman Jean-Rene Fourtou. Since then, there has been widespread speculation that Vivendi would dismantle the media company that Messier was cobbling together.

The latest move, however, keeps at least one element of Messier’s master plan in place. Although it is too early to tell what Vivendi plans to do with Universal Studios and Universal Music Group, it has been widely speculated that Fourtou may follow a similar strategy for the American companies.

Fourtou will present a plan to Vivendi’s board in Paris today that calls for the sale of various stakes in lackluster television companies in Poland, Spain and Scandinavia. Also on the block are the company’s stakes in the Studio Canal film studio, movie theater operator UGC and Canal Plus Technologies, a set-top box maker, company sources said.

Vivendi has announced that it would sell Canal Plus’ leading source of losses, Italian subsidiary Telepiu, to News Corp. for $1.3 billion.

The trimmed-down Canal Plus would be anchored by the profitable French premium pay-television network and include Canal Satellite, France’s top satellite TV system, and French cable television operator Multimathematiques.

Analysts are skeptical. “Good luck,” said Sanford C. Bernstein media analyst Michael Nathanson, who doubts that the financial markets have much appetite for a French pay-television company.

Fourtou is under pressure to clarify Vivendi’s strategy and slash $19 billion in media-related debt.

Vivendi’s financial picture worsened Monday when Vivendi Environnement, the company’s utility division, signaled to bondholders that its parent company may not be able to satisfy $1.5 billion in obligations.

Also Monday, the heads of the U.S. entertainment companies met with Fourtou and other board members in Paris and led them through an explanation of the U.S. businesses, part of Fourtou’s broad overview of the company’s assets.

Vivendi shares, already down 70% this year, dropped $1.03 to $16.29 on the New York Stock Exchange.