By James Regan and Leila Abboud
PARIS (Reuters) - French media group Vivendi (PA:VIV) has seen off a challenge from an activist hedge fund by agreeing a more than 1 billion-euro (0.72 billion pounds) increase in payouts to investors, without compromising on a key resolution for this month's shareholders' meeting that would give more power to its chairman Vincent Bollore.
U.S. hedge fund P. Schoenfeld Asset Management (PSAM) had been campaigning since March 23 over Vivendi's perceived lack of transparency, unclear strategy and poor governance, but shelved those concerns after wringing more money from the company.
Having exited telecoms and video games by selling off four of its six businesses in the past two years, Vivendi has said it wants to build itself into a stronger media company by developing its Universal Music Group and pay-TV operator Canal Plus, and by making acquisitions.
But it has provided little clarity on how it will carry out this change. Its chairman and largest shareholder Bollore rarely speaks in public and management has given only a sketchy idea of creating what they call an "integrated, industrial" media group.
CEO Arnaud Puyfontaine told the Financial Times that Vivendi was "thinking about transformational transactions" but was not interested in buying Sky (L:SKYB) or ITV (L:ITV). Three sources familiar with the matter had told Reuters that Vivendi was looking at a possible purchase of Sky.
Vivendi said on Thursday it would return 6.75 billion euros to shareholders in regular and special dividends following talks with PSAM -- above the 5.7 billion it had previously earmarked but below the 9 billion PSAM had demanded in two resolutions it put up for vote at an April 17 meeting.
However, Vivendi gave no details on its strategy and made no mention of an earlier pledge to buy back shares worth 2.7 billion euros at a maximum price of 20 euros per share.
PSAM, which says it owns 0.8 percent of Vivendi, said it dropped its resolutions for the April 17 annual meeting on higher dividends and backed management on the award of double voting rights to long-term shareholders, a move that would increase Bollore's power.
INCREASED RIGHTS
Another fund, PhiTrust, has submitted a resolution to maintain the principle of one share one vote. That ran against the recommendation of the company's board, which wants to take advantage of a new French law awarding shareholders increased rights if they hold the shares for more than two years.
Vivendi's shares closed up 1 percent at 23.885 euros after earlier touching a seven-year high of 24.42 euros.
By reaching a deal with PSAM, Bollore has defused tension ahead of the shareholder vote and taken a step to pay himself back. The industrialist and one-time corporate raider's Bollore Groupe (PA:BOLL) spent 2.04 billion euros over the past month increasing its stake in Vivendi from 5.15 percent to just over 12 percent by last week, as he geared up for a fight with PSAM.
Having said last week it would keep buying shares and might seek more board seats, Bollore revealed on Thursday it now owns more than 14.5 percent of Vivendi.
"This is a surprising, positive outcome," wrote Morgan Stanley (NYSE:MS) analyst Adrien de Saint Hilaire.
"Vivendi would still have significant headroom for M&A, should it continue to pursue such a strategy ... There is still much uncertainty around what the M&A plans Vivendi has alluded to may entail, but at least shareholders are paid to wait and could be further rewarded if indeed there is extra cash left."
The French group added that it might propose additional payouts if it spends less on acquisitions than expected over the next two years.
