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EU clears Vivendi/Seagram
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October 13, 2000: 3:11 p.m. ET
Last-minute negotiations result in Vivendi agreeing to divest BSkyB stake
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NEW YORK (CNNfn) - The European Union conditionally approved Vivendi's $25.8 billion acquisition of Seagram Co. Ltd. Friday after last-minute negotiations eased concerns the combined company would dominate pay-television, Internet portals and the online music industry in certain regions.
The EU, the executive arm of the 15-nation European Commission, said Vivendi offered a package of commitments to meet its concerns, including allowing competitors to access Seagram's Universal film unit's production and co-production library.
The Paris-based Vivendi, which is making the transition from a water utility to a worldwide media and entertainment conglomerate, also agreed to divest its approximately 20 percent stake in British pay-TV company British Sky Broadcasting Corp., a stake worth roughly $5 billion based on current market values.
BSkyB boasts more than 4.2 million customers in the United Kingdom and Ireland and another 4.4 million cable customers, and has significant ties to Rupert Murdoch's News Corp. (NWS: Research, Estimates), which also owns Fox, a major U.S. film studio.
Since Vivendi subsidiary Canal Plus already ranks as Europe's largest pay-TV operator with some 14 million subscribers, the EU had expressed concerns that combining with Seagram's Universal Pictures would only strengthen the company's current domination of the pay-TV industry in France, Italy, Spain, Belgium, the Netherlands and the Nordic region.
A last-minute snag
Vivendi also agreed to give rival Internet portals access to Universal's online music catalog for at least 5 years. The EU was concerned that adding Universal's music content to Vivendi's portal, Vizzavi, could create a dominant online music provider in the pan-European market.
Vivendi agreed to those concessions earlier this month, seemingly paving the way for an almost certain approval from the EU.
 But a source told CNNfn Wednesday that EU regulators were expected to send the process into a second phase of investigations that could last for up to four months, sparking the last-ditch negotiations that extended into the night Thursday and resulted in the surprise BSkyB divestiture.
At a press conference in Paris as the EU decision was being announced, Vivendi chairman Jean-Marie Messier said the company would divest the stake within two years "in the most harmonious conditions possible." He said the sale could take place in one or more deals, either through or outside the stock market.
Jonathan Davies, an independent media analyst, told CNNfn Friday shortly before the EU's decision was announced that he was surprised about the divestiture of the BSkyB stake.
While Canal Plus is Europe's largest pay-TV company and is present in many markets across continental Europe, it has no operations in Britain -- suggesting there are few antitrust concerns there, he said.
"What could be the benefit in terms of the public interest of Vivendi disposing of its shareholdings in BSkyB?" he said.
Universal, Paramount venture could get second look
Vivendi also agreed to provide competitors access to Universal's production and co-production films, and promised not to grant Canal Plus "first window" rights -- or the ability to show movies before they become widely available on television -- to more than 50 percent of Universal's films in France, Belgium, the Netherlands, Spain and the Nordic countries. That agreement extends for the next five years.
Separately, the EU said it "may have to reexamine" a five-year film distribution joint venture linking Universal and Paramount, another major U.S. film studio owned by Viacom Inc. (VIA.B: Research, Estimates), which was approved just last month.
"The commission believes that these undertakings reduce significantly the ability of Canal Plus to influence other major U.S. studios and eliminate the serious doubts as to the strengthening of a dominant position of Canal Plus following its vertical integration with Universal," the EU said in a prepared statement.
The merger, first announced in June, aims to create the world's second-largest media and entertainment company, behind the proposed union of America Online (AOL: Research, Estimates) and Time Warner Inc. (TWX: Research, Estimates), the parent company of CNNfn. The EU also cleared that merger proposal just last Wednesday.
Vivendi Universal would combine Vivendi's telecommunications systems and publishing interests; Seagram's Universal Music -- the world's biggest music company -- and Universal Pictures movie studio and television operations, and Canal Plus's activities in pay-TV and film production.
As part of the transaction, Seagram is working to divest its expansive liquor operations, a process Messier said Friday would be completed by year- end.
With the EU hurdle cleared, Seagram and Vivendi have received most of their required regulatory approvals, including one from the U.S. Federal Trade Commission. They still need the blessing of two Canadian regulatory bodies, as well as that of their own shareholders, however. Messier said he expects the shareholder votes for Seagram, Vivendi and Canal Plus to all take place sometime in early December.
Seagram (VO: Research, Estimates) shares climbed $2.13 to $56.13 following the EU approval, but remained well off their highs of the day. Vivendi shares closed up 0.5 percent to  84.90 euro on the Paris Bourse, while BSkyB (BSY: Research, Estimates) shares lost $1.69 to $79.31 on the New York Stock Exchange.
Vivendi shares have fallen sharply, as has the value of the euro, since the merger was first announced, shaving roughly $16 billion off the deal's value. 
-- CNNfn's London bureau and Reuters contributed to this story
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