Vivendi Investor Calls for Cash Dividend to Be Added to Spin Off of Universal Music Group Given Tax Hit

By Stuart E. Leblang, Michael J. Kliegman,  and Amy S. Elliott

On May 21, Bluebell Capital Partners (Bluebell) reportedly sent a letter to French media conglomerate Vivendi SE (EPA:  VIV), which is controlled by French billionaire Vincent Bolloré ¹ , criticizing the structure of the planned distribution to Vivendi shareholders of newly listed shares in its subsidiary Universal Music Group (UMG).  Although Bluebell cofounder Marco Taricco said that the investor is “in favour of separating UMG from the rest of the business . . . [w]hat we have reservations about is the way they are executing the separation by doing a dividend in kind.  It is suboptimal for all shareholders except for Vincent Bolloré and Groupe Bolloré.” ² 

In our earlier report on the deal, ³ we explained that the distribution will be treated as a taxable dividend for French tax purposes, generally taxable to French shareholders and subject to withholding tax for non-French shareholders.  But Taricco notes that controlling shareholders such as Bolloré may not face the same tax hit as minority shareholders.  This is because a French corporate shareholder owning at least 5 percent of the company (as is the case with the Bolloré Group) would benefit from participation exemption, in which case 95 percent of the dividends would not attract tax (and the remaining 5 percent would generally attract tax at a rate of about 28.41 percent—27.5 percent for large companies while also taking into account a 3.3 percent surtax and related deduction—for an effective rate of about 1.4 percent).  Because of that, Bluebell is asking Vivendi to add a €2.80 per share extraordinary cash dividend to the deal (for a total of about $4 billion) as an inducement to get shareholders to approve it at the June 22 general meeting.

The letter also reportedly stated that the steps already undertaken by Vivendi “in practice prevent more tax efficient solutions” and asked that UMG (which was to be a newly formed Netherlands company) be listed on the New York Stock Exchange rather than or in addition to its planned listing on the Euronext exchange.  According to Reuters, a Vivendi spokesman simply responded that “the group would have dialogue with shareholders on June 22, at its annual meeting.” ⁴  The public listing of UMG was planned for September 27, 2021 at the latest.

We suspect that Bluebell’s proposal will gain steam in advance of the June meeting given that it is unusual to have a taxable stock transaction with no cash distributed to pay the tax.

^{[1] On December 31, 2020, Bolloré Group held 320,521,374 Vivendi shares carrying an amount of 375,309,383 voting rights, i.e., 27.03% of Vivendi SE’s share capital and 29.73% of the gross voting rights.  Bolloré Group and its subsidiaries are either directly or indirectly controlled by Vincent Bolloré.  (https://www.vivendi.com/wp-content/uploads/2021/04/20210426_VIV_DEU_VIVENDI_2020_VA.pdf)}

^{[2] As reported by Leila Abboud, Activist Bluebell Capital takes aim at Vivendi, Financial Times, May 25, 2021 (https://www.ft.com/content/eabf7d93-32fe-42cd-a0ac-71665380a0a4).}

^{[3] See our prior report, “Vivendi Spin-off of Universal Music Group Will Attract French Withholding Tax” (April 30, 2021).}

^{[4] Activist fund Bluebell calls on Vivendi to sweeten Universal spin-off, Reuters, May 25, 2021 (https://www.reuters.com/business/finance/activist-fund-bluebell-calls-vivendi-sweeten-universal-spin-off-2021-05-25/).}