Vodafone 'may pay $5b for Cegetal'

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

LONDON, England (CNN) -- Vodafone Group, Europe's biggest mobile phone company, may have to pay more than 5 billion euros ($4.9 billion) to buy Vivendi Universal's 44 percent stake in Cegetel to complete a hole in its western European footprint.

Distressed Vivendi (PEX), the world's second-largest media group, may sell the business as it reduces debts built up by ousted chief executive Jean-Marie Messier.

Vodafone (VOD) has made no secret of its desire to seize control of Cegetal, which is the key to getting its hands on minority-owned SFR, France's second biggest mobile phone group. Fixed-line phone operator Cegetal owns 80 percent of SFR.

Fanos Hira, an analyst at Bear Stearns, wrote to investors saying he values Cegetel at 18.12 billion euros on a discounted cash flow (DCF) basis -- a commonly used methodology to measure the value of a company -- and Vivendi's stake at 7.9 billion euros.

But he also noted that the European mobile phone industry is trading at a 36.8 percent discount to DCF valuations, reflecting slowing growth, regulatory concerns and stiff competition.

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"If we applied the same discount to the valuation of Cegetel, we would arrive at 5.03 billion euros for Vivendi's 44 percent stake,'' said Hira.

Vodafone, which owns 20 percent of SFR and 15 percent of Cegetel, is considering devising an offer of about 4.7 billion euros for Vivendi's 44 percent stake in Cegetal, the Wall Street Journal and Britain's Observer newspaper said.

The Observer said Vodafone has told its advisers, UBS Warburg and Goldman Sachs, to sound out the new chief executive of Vivendi, Jean-Rene Fourtou, about a possible deal.

With only three mobile phone operators battling for a share of consumers, France is an attractive market, analysts said. SFR has close to 35 percent of the French wireless market, serving 12.8 million clients.

Vivendi, which has debts of about 19 billion euros, may be reluctant to sell the business because it needs cash to pay off its debt. Cegetal is one of the most cash-generative assets in its portfolio, but it can not use the money Cegetal garners to repay debt because it owns less than 50 percent of the telecom group.

Cegetel's other shareholders -- BT Group and SBC Communications, which own 26 percent and 15 percent respectively -- are keen to sell their share of phone operator.