Continued Rise in Seagram Stock Stirs Sale Speculation

Is Seagram Co. about to be sold lock, stock and whiskey barrel?

Or is company chief Edgar Bronfman Jr. going to call it a wrap for Seagram’s profit-challenged Universal Studios movie operation by spinning it off to mogul Barry Diller?

Or is this just an elaborate dance in which Bronfman ends up holding the same cards when it’s over, looking good for having bet so much on the music business?

It seems that everyone in Hollywood and on Wall Street believes that one of these scenarios is inevitable--and for good reason: Bronfman has been looking at a host of options, many of them presented by Diller, who took control of Universal’s television business two years ago.

Since America Online agreed on Jan. 10 to buy Time Warner, entertainment stocks have surged, but few have gained more than Seagram, propelling speculation that something is afoot. Seagram shares drifted lower from late October through December, then rocketed from the low $40s in late December to a recent peak of $60 before retreating slightly. The shares inched up 6 cents to $58.06 on Monday. Wall Street now values the company at about $25 billion.

“A stock doesn’t go from 43 to 60 based on anything other than a sale,” said one top entertainment veteran, noting with confidence, “The company is going to be sold.”

Still, there’s nothing to suggest that Diller is getting anywhere. Though Bronfman is known to have had some second thoughts about the logic of slicing television off from the movie operation, Seagram has benefited financially from the 45% stake it acquired as part of the transaction in Diller’s USA Networks. That stake is now worth nearly $8 billion--more than Seagram paid for 80% of Universal in 1995.

Seagram won’t comment, and company sources downplay rumors that the entire company could be sold. But sources suggest any number of other scenarios is possible, among them spinning off the company’s liquor operations or issuing a special stock for its entertainment operations.

All of this has left the smartest minds in the business scrambling to figure out exactly what Bronfman is up to, who the buyer will be and exactly what is being sold. Maybe AT&T; would buy the whole company, then spin off the spirits division to a food company and keep the content to feed its cable and wireless pipeline. Maybe Rupert Murdoch’s News Corp. or French TV giant Canal Plus would buy the Universal movie operation.

Or maybe Bronfman, stung by criticism of the previous Diller deal, would keep all of these assets unless he gets an outrageous price.

Diller is said to be trying to persuade two of his biggest USA shareholders, media moguls Paul Allen and John Malone, to help him acquire Universal’s movie and theme park assets. Sources say Diller has been urging Malone to contribute his Liberty Media holdings, a portfolio of cable and tech investments, to a transaction.

But sitting tight might be the smartest move for Bronfman. His big bet on music, culminating in the $10.4-billion purchase of PolyGram in 1998, is looking pretty right now.

Time Warner’s back-to-back merger agreements with AOL and music giant EMI highlighted the potential for downloading music from the Internet as the digital El Dorado. In addition, Seagram’s earnings are picking up, with the company in a couple of weeks expected to post stronger results, prompting some Wall Street analysts to issue favorable reports.

Bronfman isn’t tipping his hand, telling business associates and those who work for him that nothing is going on and that he too is stupefied by the big bump in Seagram’s stock price.

Top executives at the company believe nothing is imminent but hedge their comments with: “As far as I know . . . “ or “To the best of my knowledge,” “Nothing would surprise me” and “I could wake up tomorrow . . . .”

After all, Bronfman spun off Universal’s television business to Diller without bothering to tell his studio’s then-Chief Executive Frank Biondi Jr. He talked for months with Dutch electronics company Philips about buying music giant PolyGram before it all became public. He also kept his talks with Japan’s Matsushita Electric Industrial under wraps for weeks before Seagram bought Universal.

“He always does things stealthily,” suggests a source who knows him well. “He’s a close-to-the-vest guy who runs the business for the benefit of his family and his shareholders.”

But both Diller and Bronfman have reason to discuss a deal. Diller wants to shed the handcuffs he agreed to when he cut the deal with Bronfman to take over the TV assets. Bronfman has already blocked Diller’s expansion, vetoing his attempts in 1998 to buy NBC, and can stand in the way of any other deal that might dilute his equity stake. That has frustrated Diller, whose USA Networks stock has been on the upswing, giving him the currency to use in a potential transaction.

While Hollywood insiders profess that Bronfman has no intention of getting out of the music business or selling off pieces of Seagram, they say he sees the logic of putting the studio back together under someone like Diller, known as one of the strongest managers in the business. He is scrutinizing costs in Universal’s movie division and a deal with Diller would relieve him of the burden of having to continually funnel cash through the operation.

Also, for Bronfman, getting a great price would blunt criticism that he squandered family money on entertainment when he could have earned a fortune keeping it in a much less sexy investment such as chemical maker DuPont. Bronfman’s uncle, Charles, has never been keen on the entertainment investments. Bronfman’s father, Edgar Bronfman Sr., has supported his son, although rumors have surfaced periodically that he’s not enamored with entertainment either.

Even those who have done a lot of business with him throughout the years are betting that Bronfman will do what he’s always done, which is quietly negotiate a deal before springing it on the world.

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A Seagram Sale?

Although most entertainment stocks inched up after America Online agreed in January to buy Time Warner, shares of Seagram Co. have charged ahead, in part because of speculation that the company is in talks to sell all or part of its Universal Studios subsidiary. Weekly closes for a year, and latest:

Source: Bridge News