France's Vivendi and its Canal Plus pay TV unit yesterday unveiled a $29.4 billion purchase of Seagram Co Ltd, but shares of the Canadian liquor and entertainment group fell as investors questioned the future of the new media giant.
The all-stock deal, approved by the boards of the three companies on Monday, is expected to rival a planned America Online Inc - Time Warner Inc union by combining Seagram's vast entertainment holdings with an Internet and telecommunications network to satisfy European's burgeoning market for media content.
"Together, we will have an enormous subscriber base across all of the most popular and fastest-growing communications networks and technologies," said Vivendi chairman Mr Jean-Marie Messier, who will lead the combined company, Vivendi Universal.
The deal marks the end of the Bronfman family dynasty, which bought liquor assets from Joseph Seagram and Sons in 1928 and, under the leadership of grandson Edgar Bronfman Jr, transformed the company into an entertainment giant.
In addition to the spirits division, Seagram owns Hollywood's Universal Pictures, PolyGram records and theme parks.
The Bronfman family, which owns 24 per cent of Seagram, has agreed to vote its shares in favour of the transaction. The junior Bronfman will serve as vice chairman of the new company, with responsibility for the entertainment and Internet operations.
For Vivendi, the deal marks a milestone in Mr Messier's quest to transform a staid utilities conglomerate into a leading-edge global media player. Vivendi Universal is expected to be traded in Paris, New York and Toronto.
The deal calls for Vivendi to assume some $7 billion in Seagram debt, but much of that should be wiped out by the expected swift sale of Seagram's spirits business, including brands like Chivas Regal whiskey and Absolut vodka.
The spirits business is expected to fetch about $6 billion to $7 billion. A source close to the situation said preliminary discussions have begun, and analysts widely expect Britain's Allied Domecq Plc to be a leading bidder. Although the companies said the deal would be worth $77.35 a share in stock to Seagram shareholders, the value of the transaction is less than that, due to a steep decline in Vivendi's share price. Shares of Vivendi have lost more than 20 percent since word of the pending deal emerged.
The deal calls for Seagram shareholders to receive 0.8 of a Vivendi share if the Vivendi stock price falls below $96.69. Based on yesterday's trading price of about $84.50 for Vivendi, the deal was worth $67.64 to Seagram shareholders.
The price protection mechanism, known as a collar, also provides Seagram shareholders an exchange ratio of 0.622 if Vivendi shares trade above $124.30.
Vivendi also will acquire virtually all of the assets of Canal Plus, the pay television group, for about $10.6 billion. Canal Plus shareholders will receive 2.0 Vivendi shares for each Canal Plus share held. Vivendi shareholders will also retain an interest in Canal's regulated businesses.
