Matsushita to Sell 80% of MCA to Seagram Co. : Business: Beverage firm to pay $7.1 billion. Japanese owner, Hollywood giant clashed often over five years.

Electronics giant Matsushita Electric Industrial is expected to announce as early as today that it will sell 80% of MCA Inc. to distilling giant Seagram Co. for about $7.1 billion, effectively ending an acrimonious five-year marriage in which the cultures of a Hollywood institution clashed repeatedly with those of its conservative Japanese owner.

The deal follows a record $8.8-billion sale by Seagram of 156 million shares of chemical giant DuPont, a move that enables Seagram Chief Executive Edgar M. Bronfman Jr. to finance the deal and fulfill his long-held ambition of becoming a major player in the entertainment industry. Bronfman, who is based in New York, is the grandson of the founder of the Montreal-based beverage concern, which his family controls.

Matsushita’s sale of a majority of the company marks a watershed event in the about-face that Japanese companies have made since they bought U.S. assets during a wild shopping spree in the late 1980s and early 1990s.

Purchases ranged from Hollywood studios such as MCA and Columbia Pictures to such crown jewels as Rockefeller Center in New York and the Pebble Beach golf course in Northern California.

Matsushita’s purchase of MCA in particular, coming on the heels of Sony’s purchase of Columbia in 1989, triggered widespread fears that America’s entertainment business would soon be in the hands of wealthy foreign industrial concerns. Instead, Hollywood has proved full of land mines, with Sony Corp. taking a $2.7-billion write-off last fall for its Hollywood investment and Matsushita clashing repeatedly with MCA management.

Matsushita’s original idea in owning a studio such as MCA was to ensure that new video and music formats, such as the digital videodisc, would be well-supported by new films. By keeping a 20% share of the company, Matsushita is expected to still retain those rights.

To some extent, Matsushita’s withdrawal from the entertainment industry is no different than that of non-Japanese companies such as Coca-Cola that have been burned in the business.

The price that Matsushita is expected to get--which values MCA at close to $9 billion--marks a significant dollar appreciation from the $6.59 billion that the company paid for all of MCA in 1990.

With the weakness of the dollar, however, Matsushita’s 1990 purchase in yen would be worth about $10.4 billion. Whether Matsushita would have to record a loss because of the dollar’s weakness is uncertain, analysts said, because the company may choose to reinvest the dollars in the United States.

Analysts consider the price for MCA steep, based on annual operating profits of slightly more than $400 million. Still, it reflects the growing view of entertainment companies and their libraries as long-term, irreplaceable assets rather than as immediate profit-earning entities.

Last year, Viacom Inc. paid $10 billion to buy Paramount Communications, an amount regarded as high by analysts. MCA’s assets include Universal Pictures, MCA Music, Geffen Records and the Universal Studios theme park. Its library includes films ranging from Alfred Hitchcock classics to the two top-grossing films of all time, Steven Spielberg’s “E.T. the Extra-Terrestrial” and “Jurassic Park.”

The most immediate question is who will run MCA--and whether its current management will be asked to stay. Sources said those issues probably will not be dealt with formally until Seagram’s board approves the deal.

Sources said Bronfman may quickly offer a large chunk of money to smooth the bruised feelings of Chairman Lew Wasserman and President Sidney Sheinberg, so that they may stay for a while.

In an interview, Sheinberg confirmed that he spoke briefly with Bronfman by telephone Thursday, but said it was “not a substantive conversation.” Sources said Wasserman received a call from Bronfman’s father, Edgar Bronfman Sr.

Sheinberg declined to speculate on whether he would stay and suggested that he is sticking with his previous plan, which is to leave when his contract expires at the end of the year if changes are not made to give MCA managers enough flexibility to compete in the fast-changing media business.

“I’m living out my contract,” he said.

MCA executive are skeptical that Sheinberg and Wasserman will stay, given the humiliation that they endured at being kept in the dark about the sale and with the prospect that the 39-year-old Bronfman Jr. will be a hands-on owner.

News of the impending sale was greeted with mixed feelings by MCA executives. On the one hand, they said they were relieved to be rid of Matsushita’s control and welcomed an investor that they believe will want to spend money on the company.

But few expect the company’s managers to be given autonomy from Bronfman, who has long been enamored of entertainment, having produced movies such as “The Border” with Jack Nicholson and dabbled in songwriting.

“They’re trading non-involvement by an owner who did not want to grow the company, to ownership that wants to grow the company but definitely also wants to be involved,” one senior MCA executive said.

MCA executives last year became frustrated at Matsushita’s lack of responsiveness to proposals that the company bid for Virgin Records--which was eventually sold to Great Britain’s Thorn EMI--expand its theme parks, and bid on CBS last year in partnership with ITT Corp.

Those tensions boiled over last fall, when Sheinberg went public with his complaints. Hollywood executives believe that Sheinberg and Wasserman overplayed their hand when the feud became public, embarrassing a highly conservative company from a country where saving face is a key element of corporate culture.

The name of Creative Artists Agency Chairman Michael S. Ovitz has been the most frequently mentioned in Hollywood as a possible chief for the entertainment conglomerate, although a spokeswoman for Ovitz insisted that the powerful agent has no desire to run MCA.

Another open question is what becomes of the MCA plan to strike an alliance with the new DreamWorks SKG studio being formed by director Steven Spielberg, former Walt Disney Studios Chairman Jeffrey Katzenberg and music mogul David Geffen. Spielberg, who made films such as “Jurassic Park,” “Schindler’s List” and “Jaws” for MCA’s Universal Pictures unit, considers Sheinberg his mentor and has his Amblin offices on the studio’s lot.

But sources said that with the turmoil at MCA, Time Warner’s Warner Bros. unit appears to have the edge in landing the team.

Another pending question is what Bronfman will do with his 15% stake in Time Warner, worth about $2 billion. Selling the stock in the open market would no doubt send Time Warner’s stock falling.

Other options for Bronfman include finding a major investor to buy his stock or possibly swapping stock to Time Warner in exchange for some assets that the company is trying to sell, such as its 21% stake in Turner Broadcasting System or some cable systems it is trying to unload.

Bronfman, 38, was elevated to president and chief operating officer of the company in 1989, succeeding his father, Edgar Sr.

For its 156 million DuPont shares--95% of its original holding--Seagram will receive $1 billion in cash, $8.3 billion in short-term notes, and warrants valued by the companies at $440 million.

The $9.74 billion works out to $53 a share in cash and $3 a share in warrants.

Although that appears to be a sharp discount from the $64.75 a share at which DuPont closed Thursday in New York Stock Exchange trading, a Seagram spokesman defended the price as fair. He noted that a transaction so large would be almost impossible to accomplish quickly on the open market.

The transaction appears to be fully taxable in the United States, meaning that Seagram may have to pay as much as $2.3 billion in capital gains tax, according to an estimate by Paul Raman, a securities analyst at S.G. Warburg & Co. in New York. That would reduce Seagram’s net proceeds from the sale to $6.1 billion in cash and notes.

DuPont said in a statement that it will finance the repurchase with $5 billion in cash flow and asset sales--the company generates about $2.5 billion annually in cash flow, analysts say--as well as $1 billion in employee pension trust money and $2.5 billion in new equity offerings. In all, the deals eventually will reduce DuPont’s outstanding shares by 15% to 17%, which will boost per-share earnings substantially.

As for the warrants, they allow Seagram to buy 156 million DuPont shares between August, 1997, and October, 1999, at prices ranging from $89 a share to $114 a share. Those prices are far higher than DuPont shares are now worth, but analysts say they do not involve excessive projections of the stock’s potential future value.

The notes are payable in 90 days or less and will carry a market interest rate; they are seen as a way for DuPont to assemble the necessary cash for the buyout.

Times staff writers Michael Hiltzik and Claudia Eller in Los Angeles, Leslie Helm in Seattle and David Holley in Tokyo also contributed to this report.

* THE NEW MOGUL: Seagram CEO Bronfman becomes a Hollywood power. D1