Vivendi, Seagram tie knot, investors dubious

French kiss for U execs but stocks off

New partners Jean-Marie Messier and Edgar Bronfman Jr. made their engagement official Tuesday at successive news conferences in Paris and New York, thanks to the Concorde. They waxed enthusiastic at the new, global media giant they plan to create by joining their companies, Vivendi and Seagram, even as investors gave both stocks a transatlantic thrashing.

As his company prepares to enter the U.S. film biz in a big way, Messier assured the Yanks that American management run its own show, promising “no little Frenchies are going to run a Hollywood studio.”

Bronfman, soft-spoken and elegant, and Messier, unleashing a flurry of superlatives, claimed the truly international nature of their combination sets it apart from recent showbiz mergers like AOL-Time Warner, and anticipated unique synergies between Seagram’s Universal Music and Vivendi’s wireless operations.

Messier also praised Bronfman for Universal Pictures’ recent upswing, while the Seagram CEO vehemently insisted that U’s top execs will not be edged out. “The opposite is true. We have new management under Stacey Snider,” who has built up a strong team, he said. “I think you should expect no change — as opposed to a lot of change, or some change, or a little change.”

Canal Plus chief Pierre Lescure even said Canal offered Snider a job several years ago, but she turned them down for a place at U. He also called Universal Studios chief Ron Meyer “talented” and a close personal friend who is certainly welcome to stay on — “and I hope he will, as long as he’s comfortable,” he emphasized.

“Stacey has been right at the center of our connection with Working Title. We think highly of her, everyone at Working Title thinks highly of her,” added Vincent Grimond, who runs Canal’s StudioCanal unit. “She also has a very good relationship with Steven Spielberg,” he said.

He’s not worried about Messier and Bronfman’s apparent preoccupation with music and technology. It does not mean “movies are second-class citizens,” he said. The new Vivendi Universal will need more and more content to fuel both Canal’s traditional, and enormous, pay TV business and its new high-tech ventures.

On Monday night, Vivendi celebrated the launch of its current pet project, Vizzavi, a new Web portal accessible via wireless devices like cellular phones and electronic organizers, along with TVs and PCs.

The idea is for consumers to be able to access compelling content, both audio and visual, “any time, anywhere, across all media formats and connected devices,” Bronfman said.

“It’s a bittersweet day,” acknowledged Bronfman, who is ceding control of a piece of his family’s heritage. But, “in my mind, control is only valuable if it can create value,” he said.

Stock shock

The cooing of the latest mega-merger partners, however, was in marked contrast to the dour response of financial markets Tuesday. Vivendi shares continued their downward spiral, falling another 8.6%. The stock’s lost 23% of its value since news of the deal leaked out last week.

Seagram shares, which have, instead, climbed steadily since the first reports, reversed course, closing down 8.2% at $58.75.

Both CEOs said they feel sure that once investors are educated about the new company, they will help return Vivendi stock, in particular, to a more “normalized level.” Bronfman described shares of the French conglom as grossly undervalued, and Messier suggested that it was a good time to pick them up on the cheap.

He pointed out that the new Vivendi Universal, to be headquartered in Paris and New York, will have $55 billion in revenue and a hefty market capitalization of $100 billion. It will have modest debt, deep pockets and cash flow of $4 billion in 2000. Messier said he sees that figure growing by 14% a year for the next several years.

He also held out the promise of stronger ties to giant News Corp., Vivendi’s partner in U.K. satcaster BSkyB. Messier said Murdoch told him that News Corp. would find the combined Vivendi/Seagram an attractive partner. Vivendi is considering exchanging its BSkyB stake for a piece of News Corp.’s new satellite company, Sky Global Networks.

Some worries

In the meantime, there are still some potential snags in the Vivendi/Seagram deal.

The issue is the fact that the all-stock deal calls for a relatively fixed exchange ratio of Vivendi shares for Seagram shares, within a certain collar. Unless Vivendi recovers dramatically, Seagram is unlikely to get the $77-plus-a-share price it wanted. While Vivendi was originally set to pay about $34 billion in stock for Seagram, the deal was worth less than $30 billion as of Tuesday afternoon.

Yet Bronfman assured reporters that there is no cutoff point for the deal, even if Vivendi stock continues to sink. He also said either side would be liable for an $800 million breakup fee for walking away from the deal.

His words echoed those of Time Warner chairman Gerald Levin, who defended the company’s proposed sale to America Online even as AOL shares dropped like a rock after news of that merger came out.

Vivendi shareholders may be worried at the steep pricetag — even though it is all in stock — and the enormous management and cultural issues the two companies might face. The collected assets may be attractive, but execution is key.

And not all investors buy into the logic that accessing the Internet, music and video content from a cell phone is the wave of the future. To some, it seems that the companies bring together a range of interesting, but rather disparate assets. Others disagree. “The business and geographic mix of the companies’ media properties is highly complementary,” said Banc of America analyst Stewart Halpern.

Still, U.S. investors may be reluctant to own shares of what they now see as a French company — despite the fact that the new company will be listed on the New York Stock Exchange. “They may figure, I’ve had a good run with Seagram, let’s move on,” said one Wall Streeter.

Canal Plus takeover

Concurrent with its purchase of Seagram, Vivendi will also acquire the 51% of Canal Plus it doesn’t already own for around $12 billion and spin off the French group’s broadcast assets into a separate company.

Messier will be chairman of the new group, with Edgar Bronfman Jr. serving as vice chairman, with overall responsibilities for music and Internet activities.

Canal Plus chief Pierre Lescure and Eric Licoys, the chairman of Havas and chief operating officer of Vivendi, will become co-chief operating officers of Vivendi Universal.

Lescure is in charge of the Image division and Licoys tops publishing while Universal Music chief Doug Morris will run that division day to day. Philippe Germond, currently head of wireless telecom group Cegetel, will manage telecommunications and Internet, reporting to Messier on the former and Bronfman on the latter.

Seagram will have five of the 20 board seats, three of them going to the Bronfman family, with Vivendi holding 14 and Pierre Lescure taking the remaining seat.

The pair danced around what role, if any, Seagram’s 42%-owned USA Networks’ CEO Barry Diller may play in the combined company, but Messier called Diller and USA tremendous assets to Vivendi Universal and said the merger will offer USA lots of interesting opportunities abroad.

Diller pickle

They declined to say whether Diller was a candidate for either of the two as-yet-unassigned board seats; he sits on Seagram’s board. And they said the structure of his current deal with Seagram won’t change. He has total operating control of USA save for Seagram’s veto power over acquisitions topping $1.6 billion or so. Seagram — now Vivendi — can only take control of their asset if and when Diller decides to exit, which Bronfman said he hopes won’t happen any time soon.

Asked if Diller would have a bit more autonomy to pursue “NBC-ish” purchases, Bronfman said, “He’s the CEO of USA Networks and I’d expect him to speak to its future.” (Bronfman had quashed Diller’s attempt to buy NBC.)

While not expecting any regulatory hurdles, Messier said that as with any good French company, reps of Vivendi met with France’s minister of finance, minister of communications, prime minister and president before concluding the deal.

Constraints on Canal Plus’ activities in France include broadcasting legislation that requires it to contribute a percentage of its profits to French production.

(Jonathan Bing in New York contributed to this report.)

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