Seagram pops cork

SEC OKs P'gram deal, but asks for changes

NEW YORK — Universal Studios parent Seagram Co. Ltd. finally received clearance from the Securities & Exchange Commission Friday to proceed with its tender offer for Polygram Holdings, but only after the showbiz and liquor conglom agreed to change its accounting policies.

Seagram highlighted the accounting change when it quietly filed restated financial reports for fiscal 1998 with the SEC Friday, showing slightly lower revenue numbers for the year (which ended June 30) but higher operating income.

The SEC had been pressing Seagram to clarify the financial impact of companies in which it holds minority investments such as USA Networks, Loews Cineplex Entertainment Corp., United Intl. Pictures and Universal City Florida Partners, sources said.

USA sale

Additionally, Seagram revealed in its restated financial report that its sale of USA Networks to Barry Diller’s HSN Inc., (subsequently renamed USA Networks), prompted a writedown of $223 million against the value of its remaining television assets.

Until now, Seagram had said only that it incurred a net gain of $360 million on the $4.1 billion sale of USA. Apparently prompted by the SEC’s desire for more details, Seagram revealed Friday that it actually made a gain of $583 million that was reduced by the $223 million writedown.

The filing referred to “impairment” of “certain remaining television assets” as a result of the USA transaction. A spokesman for Seagram said Friday this referred to a reserve of $223 million Seagram had to set up against future liabilities arising from the company’s exit from the domestic TV production business.

A Seagram spokesman had no comment about why this was not previously disclosed, an issue raised by one Wall Street analyst Friday.

Details of the broader accounting changes will be announced by Seagram when it reports its Sept. 30 earnings this week, people close to the company said.

While Seagram’s reported net profits will not change as a result of the new accounting policies, cash flow (earnings before interest, taxes, depreciation and amortization) and revenue will change.

More detail

Instead of lumping together its share of the cash flow of unconsolidated companies like USA Networks with consolidated companies like Universal Studios in the cash flow section of its earnings reports, Seagram will report the operating income of its consolidated businesses and will show separately its share of unconsolidated investments.

(Generally businesses which are less than 50% owned are not consolidated into a company’s balance sheet).

In the restated 1998 numbers filed Friday, the change appeared to benefit Seagram. The share of unconsolidated companies was a loss of $45 million for fiscal 1998, thereby increasing Seagram’s reported operating income.

People close to the company said Seagram has been internally debating this issue for some time, and has been under pressure from investors to make the changes. The matter came to a head during the SEC’s review of Seagram’s proxy statement for the Polygram tender in the past few weeks.

The SEC’s clearance of the proxy had been expected about two weeks ago, and the delay was attributed by some observers to the accounting dispute, although neither the SEC nor Seagram would comment.

In any event, the SEC cleared the proxy statement late Friday, allowing the tender offer for Polygram shares to start this Wednesday.

That means Seagram’s $10.2 billion acquisition of Polygram will close in early December, a little later than originally expected. Seagram stock closed up $1.68 to $32.87 Friday.

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