Vivendi fait accompli

French conglom, Canal Plus & Seagram boards OK merger

Board members of Vivendi, Canal Plus and Seagram approved their proposed three-way merger Monday on both sides of the Atlantic in a deal that will create the world’s largest media company after the proposed AOL-Time Warner combination and Europe’s first real global entertainment powerhouse.

The French partners in the landmark deal “were enthusiastic and unanimous,” Vivendi chairman Jean-Marie Messier told reporters during a launch party in Paris Monday night for his company’s pet project, a new Internet portal called Vizzavi that can be accessed via cell phones and electronic organizers.

The all-stock deal, valued at some $33.7 billion, will be announced overnight. The French contingent has called a meeting of financial analysts Tuesday morning to be followed by a press conference at 11:30 a.m. local time.

Seagram CEO Edgar Bronfman Jr., was also in Paris, where the new company will be headquartered, and participated in the Seagram board meeting via telephone. He, along with Messier and Canal Plus topper Pierre Lescure plans to jump on the Concorde Tuesday to be in Gotham for another meet with press Stateside at 2:30 p.m. EDT. That’s international dealmaking for you.

Messier will rule the new international powerhouse, with Bronfman serving as vice chairman, overseeing the combined company’s giant music group directly and its growing Internet operations through Vivendi exec Philippe Germond. Germond, CEO of Vivendi’s telecom subsidiary Cegetel, will report to Bronfman on the ‘Net side and to Messier on the telecom front.

Lescure will preside over Canal’s entertainment holdings, including Seagram’s Universal Studios as well as Canal’s pay TV, library and film production. Studio Canal, the company’s nascent film studio, will be operated separately from Universal.

As to price, the two sides are now looking at a new exchange ratio that reflects the recent dip in Vivendi stock. And the final value, sources note, could be a bit higher than anticipated after taking into account options and other securities that can be converted into Seagram shares.

Instead of issuing 0.7 Vivendi shares for each share of Seagram, Vivendi may have to up offer up closer to 0.8, the bottom of a collar that was built into the deal. As its stock falls it has to offer more shares to meet Seagram’s asking price of some $77.

Vivendi shares dipped 2.50 euros ($2.39) Monday to close at 96.45 euros ($91.86) — down by more than 16% from where they were before Seagram entered the picture. The takeover is a big one to digest, even for a company as large as Vivendi. And shareholders don’t want it to issue even more stock. If Vivendi shares keep falling, the deal might well be imperiled, although after months of arduous negotiations both sides have much invested in coming together.

Still, the sale of Seagram’s beverage business, worth an estimated $8 billion, and Vivendi’s industrial assets, which are also on the block, are likely to bring in lots of fresh cash to the combined company.

Seagram stock rose more than 4% to $64 Monday.

The arrangement also calls for Vivendi to absorb Canal Plus, in which it now holds a 49% stake. Canal shareholders will get two Vivendi shares for each Canal share plus an ownership stake in a French spinoff company consisting of Canal’s broadcast TV assets. That will be carved out to comply with French government regs on owning state broadcast licenses.

Vivendi shareholders are expected to hold 59 percent of the new group, Seagram shareholders would get about 29 percent and Canal shareholders 12 percent.

Vivendi will assume $6.6 billion of Seagram debt racked up in large part by the company’s groundbreaking $10.4 billion purchase of Polygram in late 1997. Bronfman had the terms sweetened on that deal too: He had originally agreed to pay $10.6 billion.

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