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Seagram lowers USA stake
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May 4, 2000: 2:49 p.m. ET
Entertainment company declines option to maintain 45 percent ownership level
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NEW YORK (CNNfn) - Entertainment company Seagram Co. Ltd. gave up its legal right to maintain its 45 percent stake in USA Networks Inc. Thursday, but subsequently promised to take a majority stake in the media company over the next several years -- potentially aggravating an already tense situation between the two firms.
The Montreal-based Seagram declined to exercise its pre-emptive rights to maintain a proportionate equity interest in USA Networks -- rights that date back to 1997, when it sold the television assets of Universal Studios to a television conglomerate led by Barry Diller, a close friend of Seagram Chairman Edgar Bronfman Jr., creating USA Networks.
As a result, Seagram's stake in the company declined to 42.8 percent. Meanwhile, USA Networks other major shareholder, Liberty Media Group (LMG.A: Research, Estimates), opted to exercise similar rights and raised it's stake in the company to just more than 21 percent.
Seagram Chief Financial Officer Brian Mulligan said the company declined to exercise its rights because new shares made available through USA Networks' recent $650 million purchase of Precision Response were too rich compared to the company's current stock price, which closed at 21-13/16 Wednesday.
However, Mulligan told analysts in a conference call Thursday that Seagram's arrangement with USA Networks still permitted the company to start purchasing USA Networks shares on the open market in less than two years, eventually building its overall stake to 57.5 percent.
"In less than two years we will have the right to buy in the open market to address any decline in our equity share," he said. "That's what we intend to do. It's just a question of time."
 Such a move to take a majority stake could further strain the relationship between Diller and Bronfman, whose ties reportedly began to disintegrate in 1998 when Bronfman reportedly blocked a potential merger between USA Networks and General Electric Corp.'s (GE: Research, Estimates) NBC Inc.
Since that time, Diller reportedly has floated a number of ideas to Bronfman about ways to boost the television operation, including spinning it off, but thus far to no avail.
Analysts said Bronfman's influence over the USA Networks operation will only be slightly hurt by the company's decision not to exercise its pre-emptive rights. However analysts said being able to purchase a large number of shares on the open market would be difficult.
The decision comes as Wall Street continues to debate Seagram's future as an independent company. Many have speculated the firm will seek a merger partner, most likely in the telecommunications business, to try and maintain pace with the proposed AOL Time Warner conglomerate.
USA Networks shares rose 5/16 to22-1/8 in mid-afternoon trading Thursday, while Seagram shares inched up 1/8 to 52-7/16. 
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