The group, whose chief executive Jean-Bernard Levy stepped down last month, is anxious to prove that it is taking action to address concerns over its huge debt burden and flagging share price [ID:nL6E8HS8LO]. Ratings agency Standard & Poor's placed it under negative credit watch on Wednesday because of the uncertainty over its future direction.

"It's nothing official yet, but they've asked a bank to go and talk to possible buyers for Activision," said a source close to the Vivendi board.

Activision Blizzard is the biggest U.S. video game publisher by market capitalization. Vivendi owns a 60 percent stake and a sale could help the French group to raise up to $10 billion, the sources said.

Although a formal process has not started, bankers close to Vivendi are sounding out cash-rich trade players, including China's Tencent and U.S. duo Time Warner and Microsoft, as well as private-equity heavyweights KKR, Providence and Blackstone, banking sources said.

Microsoft and Time Warner declined to comment, while the other four were not immediately available to comment.

Vivendi came under fire after a badly timed acquisition of French mobile operator SFR at the beginning of the year, just before new low-cost entrant Free Mobile dented margins and market share, sending Vivendi's share price below 13 euros ($16.10).

AFFORDABLE VALUATION

Since Levy's departure the board has embarked on a strategic review that could result in sporadic disposals, a Rupert Murdoch-like split between the telecoms and entertainment businesses or a full break-up of the company.

In addition to Activision and SFR, the group's businesses include French pay-TV company Canal Plus, music label Universal Music, Maroc Telecom and Brazil's GVT.

Activision is not considered to be among the core businesses and is thought to be the easiest to offload. The company's six times EBITDA valuation is viewed as affordable for the likes of Tencent, Time Warner and Microsoft, as well as the large private equity houses.

Tencent and Activision have already agreed to a partnership that allows the internet and wireless services provider to offer Activision's popular Call of Duty title as a free-to-play online game in China. However, taking full ownership would remain a big step for Tencent because the two companies have different business models.

"They have two big franchises, Call of Duty on the console side and World of War Craft on the MMOG (massively multiplayer online game) side. And China is not a big market for console businesses; online games are much bigger for various reasons," said a banker specializing in the sector.

Microsoft is another player with the necessary firepower, but it is likely to be focused on the next generation of its Xbox console. The source said: "They probably don't want to distract themselves too much, but they are the ones who, if they want to stay in games, would think about owning some of these big franchises, not just providing the consoles."

Vivendi declined to comment on Activision and its general disposal plans but said that "every option is on the table" and that the board would take its time.

FIRST STEP TOWARDS BREAK-UP

According to bankers and analysts, a sale of Activision is unlikely to move the needle much, given Vivendi's deep-rooted woes.

Investors never really turned the page from the "Messier era" - former CEO Jean-Marie Messier - when the group's reputation was tarnished by a series of scandals.

Analysts at Bernstein Research pointed out that Vivendi's shares have underperformed the Morgan Stanley Index for European blue-chip companies in seven out of the 10 years since Messier resigned in 2002.

"Investors remain spooked and the only way to change their perception is to show a stronger leadership," said a source close to the situation. Bold decisions, such as the gradual break-up of the group, need to be taken, he added.

Bernstein Research analysts estimate that Vivendi could be worth up to 29 euros a share if the board followed a concerted program to dispose of all of its assets. With 786,599 shares to his name, Vivendi chairman Jean-Rene Fourtou could be tempted to take this route.

Maroc Telecom and Canal Plus are other assets that could come on the block, banking sources and analysts said.

Canal Plus, once a trophy asset, now looks one of the more likely candidates for disposal in the medium term, a banking source said, suggesting that new Vivendi shareholder Vincent Bollore is a possible acquirer.

The source said: "Bollore always wears these two hats: shrewd financial investor on one side and seasoned businessman on the other. With him on board, everything is possible." ($1 = 0.8077 euros)

(Additional reporting by Nadia Damouni and Liana Baker in New York, Gwenaelle Barzic in Paris; Editing by David Goodman)

• A Permanent Economic Emergency