French Media Giant Poised to Buy Seagram

Vivendi, the French media and utility conglomerate that controls the Canal Plus pay-television giant, is in the final stages of negotiating a $30-billion-plus takeover of Universal Studios’ parent, Seagram Co., according to people close to the talks.

The deal would give Europe’s largest media company a massive new supply of content to distribute through its network of media outlets. Seagram is the world’s leading music company, and its Universal Studios owns theme parks, a movie studio and a 45% stake in USA Networks Inc.

The transaction comes amid a massive consolidation of the media industry during the last decade as a handful of global giants have come to control both entertainment content and cable channels, television networks, cable systems, satellite units, Internet businesses and other forms of distribution.

In the new-media world order, Seagram has become a relatively small player. Since America Online Inc. agreed to buy Time Warner Inc. in January in what would be the largest merger in media history, Seagram has been in talks with several media suitors, including News Corp., Walt Disney Co. and Vivendi.

Vivendi joins a parade of other foreign entities eager to own a piece of the United States’ thriving media industry, with mixed success. Matsushita Electric Industrial Co. didn’t take a bath on its $6.1-billion purchase of Universal Studios, but it wasn’t a stellar investment either. Five years later, in 1995, it sold 80% to Seagram for $5.7 billion in a deal that valued its entire stake at $7.1 billion.

Sony’s experience was far worse. The company, which bought Columbia and TriStar Studios in 1989, posted a $3.2-billion loss in 1994, stemming from troubles at its film unit.

As a Canadian company, Seagram has been limited in its expansion into media distribution by federal rules that prevent it from controlling TV stations. Lacking major distribution outlets of its own, Seagram faces difficulties in competing against these behemoths. Seagram Chairman Edgar Bronfman Jr. had come under increasing pressure from his family to sell the company and capitalize on the run-up in its stock after the AOL-Time Warner announcement, which underscored the prominent role that music would play in the Internet Age.

The Vivendi deal would mark the end of a five-year ownership of Universal by Seagram, the spirits company controlled by the Bronfman family. Sources say the Bronfmans would take a major stake in Vivendi, with Edgar Bronfman maintaining a top management role and the family taking seats on the board. The Bronfman family is estimated to be worth more than $8 billion.

The deal would fulfill a vision for Vivendi’s ambitious chief executive, Jean-Marie Messier, who in four years has transformed the company beyond its core industrial business in water, construction, health care and energy. In recent years, the company has branched into the wireless, telephone and pay television businesses as Messier, 43, catapulted himself and the company into a role as a global player.

The company’s crown jewel is its 49%-owned subsidiary Canal Plus, Europe’s largest pay-TV company. Vivendi also owns 24.5% of BSkyB, making it the second-largest shareholder in Britain’s leading pay-TV service. That will give Vivendi a major role in the new global satellite venture, tentatively named Platco, that News Corp. plans to take public.

Although Canal Plus has been involved in financing major Hollywood movies, it has been unsuccessful in its attempts to acquire an American studio, including its failed bid for MGM.

Buying Seagram would put Vivendi in a league with AOL Time Warner, Viacom Inc., Walt Disney, News Corp., Bertelsmann and Sony Corp. as a global media powerhouse.

The combined company, to be named Vivendi Universal, would have a market value of more than $100 billion, entitling the Bronfman family to at least a 30% interest if it is an all-stock deal, as sources indicate.

Sources say that other management issues have yet to be worked out, but that the parties plan to acknowledge today that they are in talks. A deal is expected to be announced shortly.

Under the deal, Vivendi would pay between $70 and $80 a share for Seagram, valuing the transaction at more than $33 billion. Seagram has about $9 billion in debt. That is a rich price, considering that Seagram bought 80% of Universal from Matsushita Electric for $5.7 billion and spent $10.4 billion for PolyGram last year.

The original talks broke down in March in part because Bronfman was asking a price close to $100 a share. Sources say he backed down in price after the stock plunged from a peak of $64.25.

Since talks with Vivendi resumed three weeks ago, Seagram shares have inched up, closing at $53 a share Tuesday, up $2.38 on the New York Stock Exchange.

Also, those early talks stalled because Vivendi had no stock traded in the U.S. That made a deal difficult for Seagram because of the tax burden.

Setting the stage for this new round of talks, Vivendi recently announced that it would spin off non-media businesses into a new public company in Europe. It also plans to issue two classes of shares in the U.S. for both its media and its environmental holdings. That would give the company a currency to use in the stock swap with Seagram.

As part of the transaction, Vivendi would purchase the remaining 51% of Canal Plus. After the purchase of Seagram, Vivendi is expected to sell off the liquor business to become purely a media company.

Although News Corp. and Disney both pursued Seagram earlier this year with an eye toward filling their void in music, sources say they backed off because of growing concerns about how copyrights will be protected over the Internet. Under one scenario, music could be an eroding asset as Internet users continue to download music for free, making Seagram’s $10.4-billion purchase of PolyGram look expensive.

But Wall Street sources say that after an exclusive negotiating period with Vivendi expires, another suitor could emerge, setting off a bidding war. One potential bidder is Barry Diller’s USA Networks, which is backed by billionaire Paul Allen and John Malone’s Liberty Media Corp.

Since Bronfman sold off his USA Networks cable operation and most of Universal’s TV business to Diller’s company two years ago, relations between the two executives have become strained. Bronfman, who has an option to increase his 45% stake and has certain veto rights, has blocked Diller’s deal-making ambitions, including an offer to buy NBC.

Diller has been trying to persuade Malone and Allen to make a play for Universal, but Bronfman has been unwilling to give up control.

Hollywood was been rife with rumors that former Warner Bros. co-Chairman Terry Semel could emerge in the deal at a later date in a senior management role at Universal. Although Seagram sources and those close to the deal deny Semel’s involvement, others say Semel is working with former junk bond king Michael Milken to insert himself as an investor in the deal.

When he first purchased the company in 1995, Bronfman tried to get Semel to run Universal Studios.

Bronfman’s reviews in Hollywood and on Wall Street have been mixed. His purchase of MCA, now Universal Studios Inc., was criticized by investors and even his own family members, especially because it coincided with his sale of a lucrative stake in chemical giant DuPont Co. Initially viewed by the entertainment industry as something of a star-struck dilettante, Bronfman wrote a song under the pen name Sam Roman for a Universal film, “Daylight,” starring Sylvester Stallone.

Bronfman has been criticized for his mercurial and autocratic management style. The most flagrant example of his secretive manner is the deal he cut to spin off Universal’s TV assets to Diller, negotiating it behind the back of his then-chief executive, Frank Biondi Jr.