Vodafone eyes Vivendi's SFR

SFR telecom engineer uses mobile phone while working on relay transmitter in Paris

LONDON, England (CNN) – Vodafone is preparing a possible takeover of France's second-largest mobile operator SFR should its largest shareholder, Vivendi Universal, seek a sale, according to a press report.

The takeover of SFR would substantially complete Vodafone's pan-European network, the Guardian newspaper said on Wednesday. But it could enrage investors who think Chief Executive Chris Gent should spend less time on deals and more on wringing profits from the existing business.

The sale of the Vivendi's stake in SFR would have been unthinkable a month ago but on Tuesday the company's stock fell to its lowest level in four years after it revealed a 17 billion euro first quarter loss.

Vivendi's (PEX) poor performance, boardroom split over strategy and criticism of Chief Executive Jean-Marie Messier has raised concern that the group could be broken up, the Guardian said.

Vodafone (VOD), the world's biggest mobile phone operator, already owns a 20 percent stake in SFR and acquiring the balance could cost about £6 billion ($8 billion) but a takeover could lead to an increase of its debt pile, which stands at about £15 billion.

Banking sources told the newspaper that a substantial amount of work has already been done by Vodafone and its City advisers. The deal would involve unravelling SFR's complex ownership structure.

The French mobile business is 80 percent owned by French telecoms company Cegetel which is 44 percent owned by Vivendi. Vodafone also has a 15 percent stake in Cegetel, along with BT Group (BT-) which owns 26 percent and SBC [US:SBC] of the United States which holds 15 percent.