There's only so much that any company can do on its own, particularly when a major part of its restructuring plans revolve around selling assets at fair prices. But that is the situation facing Vivendi (OTC:VIVHY) today; while there is indeed ample capacity for the company to improve internal operations and returns, it seems like a lot of value realization rests on finding buyers for various parts of the business. Although Vivendi does appear to be worth meaningfully more than today's market value, investors should underestimate the time and work it may take for that value to come to fruition.

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Q2 Results - Only Good in a Relative Sense
Vivendi is a good example of how "good earnings" can be a relative concept. Although the company's objective performance was not very good, it was better than what investors and analysts had expected. Revenue fell about 2% for the second quarter, with a sizable decline from SFR (a French mobile phone company) and ongoing malaise in Universal Music and Maroc Telecom. Activision's (Nasdaq:ATVI) revenue growth was not too spectacular, but some of this can be tied to revenue recognition policies, and the company's Brazilian fixed-line business GVT saw a robust 19.3% reported growth. Profitability was likewise good news/bad news, as the company did beat expectations, but saw ongoing declines. "EBITA" fell more than 12%, and adjusted earnings dropped 17%. SFR, Maroc and Activision were big contributors to the declines, while GVT stands out as the company's best driver of profit growth.

SEE: Value Investing + Relative Strength = Higher Returns

Breaking up Is Hard, but Necessary, to Do
There has been a multi-year debate and controversy about whether Vivendi's conglomerate structure makes sense and the extent to which shareholders suffer a "conglomerate discount" as a result. Matters have come to more of a head recently, as the long-time CEO Jean-Bernard Levy quit in late June due to a "divergence of views on the strategic development of the group;" namely, Levy was apparently not in favor of significant restructuring or asset disposal. Now the question is what the company can, and wants to, do about it.

Vivendi tried quite publicly to sell its 60% stake in Activision, but to no avail. Not too surprisingly, strategic buyers like Microsoft (Nasdaq:MSFT), Sony (NYSE:SNE), Disney (NYSE:DIS) and Time Warner (NYSE:TWX) apparently passed, and private equity apparently wasn't interested in offering a premium. Selling Universal Music might make sense given the seemingly never ending bleeding in the music industry (despite popular acts like Bieber and Minaj on board), but who would buy it and would regulators even allow a strategic buyer to own it with the inclusion of EMI? Likewise, whether or not Vivendi could find a buyer for Canal+, the French government may not allow it and a spin-off initial public offering might be the only option there.

SEE: Cashing In On Corporate Restructuring

The company's telecom assets are a different, albeit similar, story. Maroc Telecom could be a tough sale, as the government of Morocco has to approve it and there may not be too many eager buyers for a mature slow-growth company in a country with some political risk. SFR could be more easily sold, especially as Carlos Slim has been using America Movil (NYSE:AMX) to buy stakes in slower-growth, cash flow-rich European telcos, but Vivendi won't get a premium here.

Last and not least is GVT - the company's growing Brazilian business. This is the most attractive asset, but that's the rub - how happy should Vivendi investors be to see the company sell a growth asset? Moreover, it may not even be an easy sale. Companies like Telefonica (NYSE:TEF) and Portugal Telecom (NYSE:PT) may have the will, but do they have the means? That could once again leave America Movil as the only plausible bidder, with the resulting impact to valuation.

Although the company needs to reduce its debt load (over 14 billion euros in net debt this quarter), fire sales are not going to help matters. Consequently, it may be the case that Vivendi has to take a different approach - perhaps splitting the company in two (telco and media) and looking to cost-cutting and better management to increase value. Even here there's risk, as Canal+ may be under pressure if Al Jazeera can win the rights to televise football and so on.

SEE: Who's Cashing In On Pro Sports Revenue?

The Bottom Line
Vivendi shareholders have seen steady erosion as the stock has nearly been cut in half since early 2008. Throughout that entire time, the stock has always looked like it should be worth more, but the company's performance just hasn't been good enough. Accordingly, investors shouldn't make the mistake of thinking that this is like buying Disney or Time Warner at a great discounts; there are real issues that still need to be addressed.

On the other hand, Vivendi has struggled, but still pays a pretty solid dividend, still produces solid free cash flow and still controls assets with real value. Investors who believe that management can successfully monetize assets like SFR could find the discount here appealing, but newcomers to Vivendi should understand that this is very definitely a "show me" story.

Stephen D. Simpson owned shares of America Movil (AMX) since 2004.