Canal+ going, going....
Vivendi, Seagram, Canal Form Media Giant
By Robin Sidel Jun 20 5:52pm ET
NEW YORK (Reuters) - France's Vivendi (EAUG.PA) and its Canal Plus (CNLP.PA) pay TV unit on Tuesday unveiled a $29.2 billion purchase of Seagram Co. Ltd. (VO.TO) (VO.N), 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. (AOL.N)-Time Warner Inc. (TWX.N) 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 Jean-Marie Messier, who will lead the combined company, Vivendi Universal.
Although the companies said the deal was worth $77.35 a share to Seagram holders, 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 last week.
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 Tuesday's trading price of about $83.70 for Vivendi, the deal was worth about $70 to Seagram shareholders.
Shares of Seagram tumbled $5 to 58-1/16 on the New York Stock Exchange.
Messier, Bronfman and other top executives announced the deal in Paris, hopped aboard a Concorde jet, and held a press conference in New York Tuesday afternoon. They also were slated to hold a late-day conference call with Wall Street analysts.
The executives stressed the union is essential in order to provide Internet access to consumers through devices other than the personal computer.
``The new Internet age is not even the Internet age as we know it,'' Bronfman said, noting he was talking about Internet access through ``all devices, all the time, in all places'' MILESTONE DAY FOR VIVENDI AND SEAGRAM
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 percent of Seagram, has agreed to vote its shares in favor 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 Messier's quest to transform a staid utilities conglomerate into a leading-edge global media player. Vivendi Universal is expected to be traded on the Paris, New York and Toronto stock exchanges.
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. (ALLD.L) to be a leading bidder. VIVENDI SHARES FALL, DEAL WORTH LESS
Bronfman and Messier expressed little concern about the market's reaction, saying they had expected a decline.
``We expect we'll be able to tell the story. We have to make it believable and understandable to investors,'' Bronfman said.
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.
The deal also includes an $800 million break-up fee, Bronfman said.
Word of the deal emerged last week following months of discussions between the companies. Seagram had long been considered an acquisition target because it was not considered large enough to compete on its own.
``It is, in some ways, a bittersweet day,'' Bronfman admitted. ``While we would have continued to do well and would have continued to grow, this was the best way to optimize the assets we had.''
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. DEAL DRAWS SUPPORT FROM U.S. INVESTORS, EUROPEANS FRET
One big Seagram shareholder expressed little concern about the decline in the stock's value.
``Over the next one or two months you'll get the vision of what the new Vivendi Universal will look like. Its mix of media properties should have growth aspects that are faster than Disney's, faster than News Corp.'s and faster than Viacom's,'' said Rob Lyon, president of Institutional Capital, which owns about 4.6 million shares of Seagram.
Indeed, most analysts attributed the decline in Seagram's stock price to arbitrage pressure, noting the shares had been bid up sharply in the past week on expectations of a deal.
``We view this transaction as a home run for Seagram as it catapults them near the top of the media pyramid, providing a much more robust content/distribution business mix,'' said Salomon Smith Barney analyst Jill Krutick.
The deal also won support from Philips Electronics NV (PHG.AS) (PHG.N), which said it would tender its 11 percent stake in Seagram to Vivendi. Philips, which received its stake in Seagram via the sale of PolyGram, stands to make a profit of more than $1 billion from the deal.
But European investors fretted about the implications for Vivendi, concerned about the dilutive impact of a deal on Vivendi earnings and losses in some of Seagram's businesses. They also expressed doubts about Messier's ability to run a global company from Paris.
The companies said they expect the transaction to be completed before the end of the year, although analysts have said it will undergo intense scrutiny from European and American regulators. The combined entity will have revenues of some $55 billion and a market capitalization of $100 billion.
Shares of Vivendi lost 8.6 percent in Paris to close at 88.10 euros. Canal Plus stock fell 12 percent to 178.6 euros.
SEAGRAM CONTENT TO BE DISTRIBUTED VIA VIZZAVI
Messier is eager to distribute Seagram's extensive entertainment content via its new Internet portal, dubbed Vizzavi. Vivendi launched the portal with British partner Vodafone AirTouch Plc (VOD.L) (VOD.N) on Monday, offering Internet access and online services to the group's combined 80 million mobile phone users and pay TV subscribers in Europe.
Vivendi also controls France's number two telecommunications operator Cegetel, publisher Havas, film group Pathe and has a stake in Web provider AOL France.
Seagram will have five of the 20 board seats, with Vivendi holding 14 and Canal Plus Chairman Pierre Lescure holding the remaining seat.
(Additional reporting by Noah Barkin, Sophie Walker, David Clarke and William Emmanuel in Paris)
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