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Vivendi nibbles at Seagram
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June 14, 2000: 7:27 p.m. ET
French confirm talks to buy Canadian firm; deal seen valued at $37B
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LONDON (CNNfn) - France's Vivendi and Canal Plus said Wednesday they're in talks to acquire Seagram, the Canadian entertainment and beverage company -- the latest effort to tie together "new" and "old" media firms.
A source close to the talks told CNNfn it might be weeks before any agreement is formally announced, but didn't rule out developments in the more immediate future.
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CNNfn's Tom Bogdanowicz takes a look at the potential deal.
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The transaction, which could value Seagram at around $37 billion in stock and debt, is a direct reaction to the pending merger of America Online and Time Warner, analysts said.
"The deal will combine assets of Vivendi and give Seagram more size to compete in the new universe of mega-companies," said analyst Alan Gould, of Gerard Klauer Mattison & Co.
Vivendi's proposed combination follows not only the transaction between America Online (AOL: Research, Estimates) and Time Warner (TWX: Research, Estimates), parent of CNNfn, but also the recent $50 billion merger of Viacom Inc. (VIA: Research, Estimates) and CBS Corp., analysts said.
A merger with Vivendi gives Seagram global reach, said analyst Laura Martin, of CS First Boston. "Scale and scope is important in this AOL/Time Warner world," she said. "We will see more mega deals. This is only the beginning, not the end."
Analyst Stewart Halpern, of BofA Montgomery, said the merger benefits both companies. Seagram is a major music powerhouse, and has holdings in studios, theme parks and a significant stake in USA Networks.
"Seagram is a good combination with Vivendi, which has Canal Plus, a large Internet business, advertising holdings and is one of the largest computer games companies in the world," he said. "These businesses are quite complimentary with Seagram."
Marc Gabelli, managing director of Gabelli Funds, told CNNfn that the push for entertainment content spurred the deal. (426K WAV) (426K AIFF)
The Vivendi/Seagram's combination
Vivendi and Seagram were first reported to be talking in March, although those discussions apparently foundered amid disagreement over the continuing role of Seagram Chief Executive Edgar Bronfman Jr.
Vivendi warned in a statement that any resulting deal would be based on the companies' share prices before Wednesday's confirmation of the talks. Seagram indicated in a separate release that any transaction would be an all-stock deal, although a Vivendi spokesman would not confirm this. It said the talks started after the French pair made an approach regarding a "strategic combination".
"On paper the deal makes sense, it's a marriage of content and distribution," a Paris-based media analyst, who asked not to be named, told CNNfn. But he warned that Canal Plus's foray into the U.S. a few years ago turned into an expensive mistake, and pointed out that Seagram's film division continues to lose money.
"It all depends on how the deal is structured - there are still many, many question marks," the analyst said.
"Strategically, the deal would be great for Vivendi and Canal Plus," London brokerage firm Williams de Broe said in a note to clients: "Vivendi is morphing itself into a new-media communications powerhouse and it needs the music and film content that Seagram owns."
However, the broker warned that "financially, the acquisition could be fraught with difficulty," because of the operating losses incurred by Seagram's film operations.
The companies refused to comment on how they intended to parcel up the deal. Analysts speculated that Canal Plus (PAN), now 49 percent owned by Vivendi, could be restructured to hold all the combined firm's media assets.
According to analysts, a number of major media conglomerates are talking deals and possible blockbuster alliances with each other.
Seagram closed 7-1/8 higher at 60-1/8. Vivendi stock closed more than 10 percent lower at  103.5 in Paris trade Wednesday, while Canal Plus shares dipped 3 percent to 204.6. 
Vivendi (PEX) has long been interested in expanding its media and communications activities into North America. Meanwhile, Seagram (VO: Research, Estimates) has been searching for a strategy to make the most of its entertainment assets, including Universal Music, the world's largest recorded music publisher, and Hollywood movie maker Universal Studios.
Reports Wednesday indicated Vivendi would pay more than $70 per Seagram share, valuing the Canadian firm's capital at more than $30.5 billion, on the basis of 436.43 million shares outstanding at the end of March. At its fiscal year end on June 30, 1999, Seagram had net debt of around $7 billion.
A $70 to $75 price tag for Seagram is reasonable, said BofA Montgomery's Halpern, who has a $74 12-month price target on the stock. "It will have to be at least at that price range to sell the deal to Seagram shareholders," he said.
Vivendi has a market value of some 57 billion ($54.8 billion). The company generated revenue of 41.6 billion and net income of 1.43 billion last year. Canal Plus has a stock market value of around $27 billion, and had 1999 sales of 3.3 billion.
In the event of a takeover, Vivendi might recoup some of its outlay by selling Seagram's spirits and beverages and amusement park divisions. 
Vivendi, one of the world's two largest environmental services companies, has changed markedly in recent years under the stewardship of chief executive Jean-Marie Messier. The firm has branched out from its origins as a provider of water and waste treatment services, and now has interests in mobile telephone, television, new media and publishing.
As well as its Canal Plus holding, Vivendi is a 25 percent shareholder in British pay-TV firm BSkyB (BSY) -- the second largest investor in the company after Rupert Murdoch's News Corp. Vivendi has said it will sell its environmental services division this year. 
-- from staff and wire reports
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Vivendi
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