Seagram-Vivendi Acquisition Talks a Long Time Coming
It was supposed to be a casual meeting between two executives who do a lot of business together yet don’t know each other.
At least that’s what Universal Studios TV chief Blair Westlake had in mind in August when he suggested to his boss, Seagram Chief Executive Edgar Bronfman Jr., that he meet Jean-Marie Messier, head of the giant French water and media conglomerate Vivendi. Messier, ambitious to become a global media and telecommunications player, was partners with Seagram’s Universal Studios through Vivendi’s Canal Plus TV unit in a range of ventures from the “13th Street” channel in Europe to such movies as the recent “U-571.”
Bronfman broke free from a Paris vacation Oct. 12 to drop by Messier’s office for breakfast. The result was more than a new friendship: The meeting set in motion the possible $40-billion acquisition of the entertainment and spirits giant by Vivendi, one of the biggest global entertainment deals ever.
Friday, a basic outline of the still-uncompleted deal was agreed upon in the New York headquarters of the Simpson Thacher & Bartlett law firm. And Wednesday, the parties issued terse statements confirming the talks, but said little else.
This wasn’t, however, a quickly hatched proposal.
The pressure of the stunning Time Warner and America Online proposed merger announced Jan. 10 kicked the Seagram-Vivendi deal into gear. From that point on, every other media and entertainment company was playing catch-up. For Seagram and Vivendi, it meant finding a partner or risk being marginalized in a world where music, film and television would be routinely distributed through new digital and broadband technologies.
Bronfman and Messier met again at 8:40 a.m. on Feb. 16 in Messier’s suite at the Four Seasons Hotel in Manhattan, followed by a dozen or so meetings in New York law offices, Parisian restaurants over fine wines and at Bronfman’s Upper East Side townhouse.
Then, in April, the deal nearly died under the weight of Bronfman’s $100 a share asking price.
Three weeks ago talks resumed in earnest, culminating in a deal that Seagram sources say is imminent within three weeks.
Sources said that the proposed all-stock, three-way merger is expected to give Montreal-based Seagram shareholders about $77 a share in stock, putting the value of the deal at more than $40 billion when Seagram’s $7-billion net debt is factored in.
The Bronfman family would hold about 8% of Vivendi, making them the company’s largest shareholders, and will control five out of 16 seats on the board of directors. Three of the seats are expected to be held by Bronfman, his father, Edgar Sr., and his uncle, Charles.
Bronfman would become a vice chairman, the No. 2 man in a three-member triumvirate that would include Messier and Canal Plus Chairman Pierre Lescure. Bronfman is set to oversee Seagram’s huge music empire that was the focus of much of his growth strategy since Seagram bought Universal Studios Inc. in 1995, as well as the company’s new technologies group. Beyond that, nothing else in the management structure appears set.
What businesses would be kept also is uncertain. Vivendi is expected to spin off its own non-media businesses such as water and energy operations, as well as Seagram’s spirits business, where the Bronfman family fortune has its roots in such brands as Chivas Regal. Analysts estimate the liquor operation could fetch $9 billion.
Other assets also could be sold as well. During the last few days, for example, the Hollywood law firm of Ziffren, Brittenham, Branca & Fischer, brought in by Vivendi corporate lawyers Cravath, Swaine & Moore, have been evaluating Seagram’s entertainment assets for the French company. The goal is to answer such questions as whether Vivendi wants to keep Universal’s theme parks.
It’s also unclear how the deal would affect USA Networks, the television and Internet venture controlled by Barry Diller that is 45%-owned by Seagram. Although industry executives speculate that Diller or one of his major shareholders--Liberty Media Corp. or billionaire Paul Allen--could launch a rival bid for Seagram, Wall Street sources doubt that any competing offer will emerge at these prices. “It is obvious that Seagram has been for sale for the better part of a year and it’s still not sold,” said one investment banker.
In fact, USA’s stock jumped more than 11% on Wednesday--closing at $21.25, up $2.19--in an indication that Vivendi’s purchase of Seagram could be good for USA because Messier might be more willing than Bronfman to encourage Diller to grow. Though Diller has been trying to build a major media company on the backs of the Home Shopping Network cash cow over the last five years, his growth has been stifled by Bronfman.
As part of a complicated deal two years ago, Diller bought most of Universal’s TV business, including the USA and Sci Fi cable channels, in exchange for giving Seagram a 45% stake in the company and certain veto rights over future deals. Bronfman has blocked Diller’s ability to buy NBC because he wanted to avoid having his stake in USA Networks diluted by such a purchase.
As a result, sources say the two men, who had been friends, are barely speaking to each other.
One Wall Street source said speculation that Vivendi will buy the remaining shares of USA Networks at a premium had caused the stock to rise. Sources close to Diller said the mogul, who controls the votes of USA, would not be inclined to sell and that he has mixed feelings about Vivendi’s purchase.
USA sources say Vivendi could help USA get distribution of its cable channels in Europe. The company is in the process of expanding Sci Fi overseas. Also, USA’s Citysearch online service could ride Vivendi’s Internet portal, Vizzavi, to become a factor in Europe.
A final deal is expected to be agreed to within about three weeks, while details, many involving tax issues, are finalized. After that, the two companies would maneuver through regulatory agencies in Europe, the U.S. and Canada.
The deal could still fall apart, although Seagram sources expressed confidence it won’t. Although it is conceivable another bidder could emerge, Seagram sources said the company considers it unlikely. During the last few months, three other companies--Walt Disney Co., Rupert Murdoch’s News Corp. and Germany’s Bertelsmann--looked at buying Seagram, but none ever reached the serious stage.
One reason Seagram believes another suitor is unlikely is because any acquisition of Seagram would have to be made using stock as a currency to keep it tax-free for Seagram shareholders, especially for the Bronfman family, which owns 25% of Seagram. Sources say that the Bronfmans believe that Vivendi is by far the best fit, adding that it would take a lot of convincing that shares in another company would be a better deal than what they would get from Vivendi.
Wall Street sources said that the only scenario in which they see another bidder stepping in is if talks between Vivendi and Seagram break down or Vivendi’s stock plunges, making the deal unattractive.
Vivendi does face several challenges. It plans to buy the remaining 51% of Canal Plus and must structure it around French laws that forbid an industrial company from owning more than 49% of the broadcaster and cable operator. The Seagram purchase also depends on Vivendi’s issuing shares on on a major U.S. market. Its U.S. shares now trade over-the-counter.
Traders are discounting Seagram’s stock just in case, as well as to account for the lack of details. Although the news pushed Seagram’s stock up $7.13, it still closed at only $60.13 on the New York Stock Exchange.
“The Europeans are going to love this deal, the French are going to love this deal. What I’m waiting to see is if we Americans are going to be treated in a rational way,” said money manager and Seagram shareholder Mario J. Gabelli.
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Bourbon and Water
Seagram CEO Edgar Bronfman Jr.
Tourists at Universal Studios, one of Seagram’s best-known brands.
Vivendi CEO Jean-Marie Messier
After months of negotiations, Seagram and Vivendi announced a $40-billion all-stock merger that would give Seagram shareholders about $77 a share.
Vivendi at a Glance
* Headquarters: Paris
* 1999 revenues: $39.7 billion
* 1999 earnings: $1.3 billion
* Media Media assets: 49% of Canal Plus; 50% of Vizzavi internet service; 25% of British Sky Broadcasting. Also Cergetel, telephone service, SFR cellular phone services and Havas Publishing
Vivendi closes at $20.00,