Vivendi-Seagram Deal Gets Formal OK

French utility and media giant Vivendi reached a formal agreement late Monday to buy Seagram Co., including Universal Studios Inc. and Universal Music Group, in a $34-billion stock swap hammered out despite the continued nervousness of Vivendi investors.

Lingering questions about the exact role Seagram scion Edgar Bronfman Jr. will play as the company’s second-in-command remained as deal negotiations shifted into high gear the last few days when both sides realized that they could quickly iron out differences. Seagram directors unanimously approved the sale Monday night in New York.

Sources said the deal calls for Seagram stockholders to receive $77.35 a share in Vivendi stock, putting the value at about $34 billion. Vivendi also will inherit about $7 billion in net debt that the entertainment and spirits company has on its books.

Vivendi is especially eager to use Seagram’s huge music operations to help boost its growing Internet and wireless businesses, as the digital distribution of music fast approaches.

Once a staid water company, Vivendi, under Chairman Jean-Marie Messier, is transforming itself into a telecommunications, Internet and entertainment powerhouse. It owns 49% of European pay-TV company Canal Plus, which will be acquired and folded into the companies as part of the three-way deal, as well as France’s largest Internet service provider and a major telephone company.

Vivendi-controlled Canal Plus will manage Universal’s film and television assets from its offices in Paris, Canal Plus Executive Vice President Vincent Grimond said. “There will be U.S. management at the studio that will report directly to Canal Plus Chairman Pierre Lescure.”

When asked whether there are plans to bring in new leadership at Universal, he said, “I am not in a position to comment on that.”

Vivendi’s shares have slipped more than 15% since before word of the deal leaked out last week. But Seagram has a so-called collar built into the terms to protect shareholders who might seek more Vivendi shares should the French company’s stock price continue to languish.

On Monday, Vivendi’s stock again fell, dropping 2.6% to 96.45 euros in trading in Paris. That’s the lowest price at which it has traded since January.

Investors are worried about Vivendi paying too high a price for Seagram, as well as whether Seagram will be able to protect its music copyrights as technology increasingly allows the free downloading and sharing of music. Seagram’s collar would effectively adjust the rate at which Seagram shares will be swapped for Vivendi shares--right now it’s at 0.7 of a share--to make sure that the ultimate value for Seagram stockholders remains at $77.35 a share when the deal closes.

Seagram’s shares closed Monday at $64, up $2.56 on the New York Stock Exchange.

Vivendi stockholders approved the deal unanimously, as did directors of Canal Plus. Sources said some minor details were still being worked out late Monday, but nothing that is expected to hold up the sale.

The formal unveiling of the deal will take place early today at a Paris news conference by Bronfman, Messier and Lescure.

As expected, the Bronfman family, which controls 25% of Seagram, will control about 8% of the stock, as well as five of 18 seats on Vivendi’s board of directors. Seagram shareholders overall are expected to own slightly less than 30% of the merged companies.

Bronfman will become vice chairman, overseeing the company’s music and new technologies units. Sources close to the company said his role will be analogous to the one mogul Ted Turner has had as a major shareholder and vice chairman at Time Warner, which he assumed when he sold his Turner Broadcasting systems to the company.

But they also expressed skepticism that Bronfman, who has worked only for his family company, will be happy with the diminished power the job will bring, as well as such demands as regularly commuting to Paris.

“Everything argues against it working,” said one executive close to Seagram. “He’ll get tired of it.”

Vivendi is expected to move quickly to sell Seagram’s spirits operations, the business that built the Bronfman family fortune through such brands as Chivas Regal.

Sources said one leading candidate is Allied Domecq, a British spirits and food conglomerate that owns Beefeater Gin and Kahlua, along with such food companies as Baskin-Robbins. Two years ago Seagram and Allied Domecq held talks about combining their spirits divisions to combat slower growth in that business.

But Seagram sources also said that Bronfman family members might be interested in buying the operation if it doesn’t attract sufficient bids. They noted that Bronfman’s brother, Sam, runs the company’s wine operations in Northern California and that Bronfman’s uncle, Charles, may be interested. Analysts have estimated the division’s value at about $9 billion.