Seagram to raise $2.5 bil

Stock offering on track with theme park

NEW YORK — Universal Studios parent Seagram said Thursday that it intends to raise at least $2.5 billion in new equity to reduce the company’s debt load, while a prominent member of Seagram’s controlling family will sell an additional $500 million in stock.

Charles R. Bronfman, uncle of Seagram CEO Edgar Bronfman Jr., will sell about 15% of his immediate family’s stake for “financial and estate planning purposes,” the elder Bronfman said in a statement.

While the company’s stock offering appears timed to take advantage of investor hopes for Seagram’s new Florida theme park, momentum in the music business and signs of an upturn in the film biz, Charles Bronfman’s decision to sell down suggests that he remains unenthusiastic about Seagram’s move into entertainment.

Clearly anticipating a renewal of the speculation that has circulated almost since Seagram bought Universal (then named MCA) in 1995, he said in an unusual statement Thursday night that he remains “very supportive of the company’s leadership, its strategic direction and performance.”

Selling again

The sale, however, will represent the second time in just a few months that Charles Bronfman has reduced his Seagram stake: In February, he sold 3.036 million shares to raise almost $140 million (Daily Variety, April 9). At current market prices, Bronfman will sell about 8 million shares in the upcoming offering, leaving his family with 44 million shares, or about 10% of Seagram.

The wider Bronfman family’s Seagram holding, including stock controlled by Edgar Bronfman Jr. and his father, Edgar Sr., will drop to about 25% from 29% as a result of the stock offerings.

In recent months Bronfman’s discontent over Seagram’s strategic direction may have been overcome to some extent by the company’s improving share price. Seagram stock, which stagnated at about $35 for the past few years, hit a high of $65 earlier this year, though it has traded down in recent weeks and closed down 62¢ Thursday to $58.56.

Seagram’s stock price has been helped by enthusiasm over the Internet, as Universal Music Group is undertaking various ‘Net-related music initiatives, as well as high expectations for the new Islands of Adventure theme park in Orlando, which opens later this month.

Film thaw

The one part of U’s business empire that’s still lagging, the film studio, is suddenly showing signs of life, with last weekend’s strong opening for “The Mummy” and high hopes for about-to-be-released “Notting Hill.”

Seagram CEO Edgar Bronfman Jr. said in a statement that money raised from the stock offering would be used to reduce debt and for other “general corporate purposes.” As is standard when companies file with the SEC to raise money, Seagram declined to elaborate.

How Wall Street will react to the stock offering was not immediately clear Thursday night, as the offering was announced after the market closed, though investors are likely to welcome U’s effort to reduce debt that stands at $8.45 billion.

The debt load, a legacy of the $10 billion Polygram acquisition, is much higher than Seagram’s showbiz rivals when measured as a ratio of annual cash flow (earnings before interest, taxes, depreciation and amortization).

Seagram’s debt-to-cash flow ratio is between 7:1 and 8:1, depending on estimates for 1999 cash flow, whereas showbiz companies historically have tried to keep the ratio below 5:1.

Concerns about credit rating

Seagram is believed to have been concerned that the high debt ratio could reduce its credit rating, an important issue for the Bronfmans, who have generally run the company with relatively low debt.

Still, Seagram is attempting to sell a large amount of equity only a short time after its stock price began to recover from a long period of stagnation. That may become an issue in the marketing of the offering, particularly given the ongoing questions about the film business and uncertainties about the Internet’s impact on the music business.

Seagram’s equity sales will be done in two parts: a sale of at least $1.5 billion in common stock, and at least another $1 billion in equity securities that will convert into common stock at a ratio reflecting Seagram’s stock price in three years’ time, the company said.

The offerings will be underwritten by Goldman Sachs, Seagram’s usual investment banker.