Seagram stox walk

Drops on news of offering amid value fears

NEW YORK — Seagram stock plunged nearly 8% to $54 Friday as investors responded with their feet to the company’s unexpected plan to raise $2.5 billion in new equity.

Wall Streeters said Seagram was sending a signal through the offering that it believed its stock was fully valued at current levels, a point reinforced by Charles Bronfman’s decision to sell roughly 15% of his stake alongside the company’s offering.

Saying uncle

Bronfman, the uncle of CEO Edgar Bronfman Jr., plans to sell $500 million in stock, a move that may worry investors, Wall Streeters said.

“They’re telling you that they think the stock is ahead of itself,” said one money manager.

Charles Bronfman’s role in the offering may be “a sign of his disillusionment for the turn the company has taken” in moving toward entertainment, said Schroder & Co. analyst Scott Davis in a note to clients Friday.

Similar comments were made by other Wall Streeters, though Bronfman had insisted in a statement issued Thursday that he remains “very supportive of the company’s leadership, its strategic direction and performance.”

Reducing debt sensible

Still, Schroder’s Davis said the offerings “make a great deal of sense,” given Seagram’s “potentially uncomfortable level of debt” of about $8.5 billion — a legacy of its acquisition of Polygram last December.

The problem for Seagram, one observer said, is that investors may decide to follow the family’s lead and sell rather than participate in the offering and buy. That would likely force down the price of the offering and require Seagram to sell more shares to raise the same amount of money.

Seagram’s stock price has rallied sharply over the past six months from around $25 to a high of $65, though it has slipped back in recent weeks, closing down $4.56 to $54 Friday.

The rally reflected enthusiasm over Universal Music Group’s Internet initiatives and the upcoming opening of U’s new Orlando theme park. Also likely helping were signs that the film biz is finally turning around.

Stock overvalued?

Many on Wall Street believe the stock is overvalued at current levels. Schroder, for instance, rates the stock a “neutral.”

But in a recent report on Seagram stock put out 10 days ago, Goldman Sachs, the firm leading the underwriting of the offering, estimated that Seagram was trading at a lower relative valuation than its four major peers — Time Warner, Viacom, Walt Disney Co. and Fox Entertainment Group.

Goldman argued in its report that the stock should rise to $70 by the end of the year.

Seagram has historically demonstrated a financially conservative approach, and analysts said the offering reflected that policy. The cash raised from the offering will be used to reduce debt, Seagram said.