Europe's largest entertainment group Vivendi delivered forecast-beating second quarter underlying profit, despite the global economic crisis, and said it had ditched a deal with Kuwaiti telecoms firm Zain.

Chief executive Jean-Bernard Levy said on Tuesday the French company was sticking to a cautious acquisition policy, which would sharply reduce its debt in 2009.

Levy made the comments after Walt Disney Co on Monday agreed to buy Marvel Entertainment Inc for $4 billion in the year's biggest media deal.

Vivendi said it still expected a strong rise in adjusted operating income for 2009 and confirmed a dividend payout ratio of at least 50 percent of net adjusted income.

We are confident in our ability to drive long-term profit growth and reiterate our commitment to distribute high dividend streams for 2009 and beyond, Levy told a call with analysts.

Vivendi shares were up 1.5 percent at 20.18 euros by 0833 GMT, bucking a negative European media index .SXMP.

Given Vivendi's recent strong underperformance, we believe it's time to massively reposition ourselves on the stock, whose risk profile seems very limited, broker Oddo Securities said.

Vivendi shares have lost 14 percent so far this year, lagging both the European telecoms .SXKP and media sectors.

Vivendi, which in July ended talks to buy a majority stake in Zain's African telecoms unit, said the issue was now over.

Levy told journalists Vivendi remained very cautious on external growth and that net debt could decline to slightly over 7 billion euros ($10 billion) at the end of the year, from 8.5 billion euros at the end of June 2009.

At this stage we do not have any acquisition project to disclose, Levy said.

Vivendi, a majority stake holder in Maroc Telecom and which recently bought a stake in a telecoms operator in Mali, remains keen on expanding in emerging countries.

But when asked about Zain, Levy said: The Zain dossier is over ... We do not intend to pay more than what it was worth.

Asked if he would again look at Zain's assets if offered a lower price, he said: This issue in not on the agenda.

Zain, whose shareholders voted to scrap individual ownership limits on Monday, is in negotiations to sell a stake in its African business. Levy also said Vivendi had not yet made a decision on the future of its 20 percent stake in NBC Universal. It has an option to sell the stake each November until 2016.

CRISIS-RESILIENT EARNINGS

With 70 percent of revenue coming from phone, Internet, pay-TV and online video games subscriptions, Vivendi is viewed as one of the most defensive stocks in the media sector, with low exposure to bleak advertising markets.

Vivendi achieved a very solid first half 2009 in a difficult environment, Levy said, adding the impact of the crisis on the company was real but limited.

The owner of Activision Blizzard, the world's top video games company, and of SFR, France's second-biggest mobile operator, said second-quarter earnings before interest, taxes, and amortization (EBITA) rose 10.4 percent to 1.51 billion euros.

Total group revenue grew 11 percent to 6.65 billion euros, driven by past acquisitions, notably in video games. The average forecasts in a Reuters poll of 10 analysts were 1.42 billion euros for EBITA and 6.69 billion euros for revenue.

Levy said SFR had increased market share in the fixed/Internet and mobile segments.

SFR CEO Frank Esser told analysts that he targeted a decrease of some 7 percent in operating expenses at SFR in 2009 and that mobile EBITDA would show a mid-single digit decrease, partly due to the strong commercial results of the iPhone. The group had sold 280,000 iPhones at end July.

The Canal Plus pay-TV unit eyed a slight growth in revenue in 2009 and a decrease of around 10 percent in EBITA.

Vivendi, which owns, Universal Music, the world's largest music company said the division expected a decrease in 2009 EBITA due to more challenging market conditions and higher than expected restructuring costs.

(Editing by Marie Maitre/Will Waterman)

($1=.6964 Euro)