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Polygram stock drops

Street smells trouble as Seagram deal pending

NEW YORK — Polygram Holdings’ stock dropped 93¢ to $53.12 Friday on concerns that Seagram Co. and Polygram’s parent Philips Electronics NV may be having trouble finalizing the definitive agreement for Polygram’s sale to Seagram.

People close to the deal have said for the past couple of weeks that the definitive agreement would be signed “any day” but it had not been signed by Friday afternoon. Sources insisted, however, that the deal was going ahead and the definitive agreement would be signed shortly.

“Everything is a go,” said one source.

Diligence delay

The London-based Financial Times reported Friday that Seagram’s desire to do additional due diligence was delaying the definitive agreement but this could not be confirmed. Seagram execs did not return calls and a Polygram spokeswoman declined comment.

It is now a month since Seagram announced it had reached an “agreement in principle” to acquire Polygram for $10.6 billion in cash and stock. At the time Seagram said the definitive agreement had to be negotiated and signed before a tender offer for Polygram shares could commence.

One person with knowledge of the situation said Friday that lawyers involved in the negotiations have been “working feverishly” to get the documents finalized.

Complex closing

One Wall Streeter not involved in the talks said it was common for documentation on a complex, international transaction to drag out. The involvement of three companies — Polygram as well as Philips and Seagram — makes the talks even more complicated.

Seagram has wasted no time on measures to finance the deal, which will cost $8.6 billion in cash and $2 billion in stock. Less than a week after announcing the agreement, Seagram sold its remaining Time Warner stake for $725 million and 10 days ago it filed documents for the initial public offering of Tropicana Products.

Seagram said in the prospectus that the maximum sale price for Tropicana was $3.57 billion. If the conglom raised that much, it would have raised a total of $4.2 billion to fund the Polygram deal, leaving only $4.4 billion of debt.

Auction firmed

Meanwhile, Goldman Sachs, which is underwriting the Tropicana IPO, is also moving forward on the auction of Polygram Filmed Entertainment. Briefing books on PFE are expected to go out to interested parties within the next couple of weeks, although Wall Streeters say interest at this stage continues to be soft.

Polygram’s price slide Friday means the stock has come down 6.6% since the deal was announced and 10% below Seagram’s offer price of about $59 a share. Seagram stock closed down 6¢ to $41.56 Friday.

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