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Seagram Co. Chief Executive Edgar M. Bronfman Jr. says his negotiations to merge his company with Paris-based Vivendi (and Canal+, which is 49%-owned by Vivendi) are virtually complete. The parties began talking in April, he says, and could wrap up all remaining loose ends as early as the last week in June.
The plan is that Vivendi will acquire Seagram in a stock-for-stock swap valued at $75 to $79 a share, creating a new company -- Vivendi Universal -- with a projected $65 billion in revenues and $100 billion market capitalization. In terms of size and global reach, Vivendi Universal would rank among the world's top five media and entertainment companies.
Bronfman, 45, is to be Vivendi Universal's No. 2 executive, working closely with Vivendi Chairman and CEO Jean-Marie Messier. Seagram will control 5 of 18 board seats, while the Bronfman family will be the largest shareholders, with an 8% stake. "We think of it as a partnership, but Messier will be the ultimate leader," Bronfman says in an exclusive interview with Business Week. "He's extremely smart and tough, a deal maker who knows how to get things done. That's extremely important to me because this is just Stage One. There will be opportunities going forward for us to do many more things."
MIXED EMOTIONS.
Although the climactic deal negotiations took place mostly in New York, Bronfman says Vivendi Universal will have its head office in Paris, now home to Vivendi and Canal+. He plans to commute weekly to Paris from his Manhattan home, where he lives with his wife and three young children. But at least he'll be making the transatlantic commute in style. Seagram's corporate air force includes a Gulfstream V, the ultimate business jet.
Bronfman, the grandson of legendary Seagram founder Samuel Bronfman, admits to mixed emotions at the looming prospect of Seagram's disappearance as an independent company. "It's fair to say that this decision has been difficult for my family and certainly for me personally," he says. "But it's important to remind oneself that as a family we have always tried to operate in the best interests of all Seagram shareholders." If the acquisition proceeds as plans, Seagram will bow out with a total value of about $40 billion compared with $15 billion when Edgar Jr. succeeded his father, Edgar Bronfman Sr., as CEO in 1994.
On the other hand, the sale to Vivendi on the proposed terms would represent a redemption of sorts for Edgar Jr., who led Seagram's transformation from an old-line liquor company into an entertainment conglomerate. Edgar Jr., who skipped college to dabble as a Hollywood filmmaker, got off to a shaky start as CEO. On Wall Street and especially in Hollywood, he was roundly mocked as a rich kid indulging an adolescent fascination with show biz.
EURO WORRIES.
But Bronfman persisted and kicked Seagram's transformation into high gear with two blockbuster deals: the $5.7 billion acquisition of MCA in 1995 and the $10.4 billion buyout of Polygram in 1998. Polygram was merged into Seagram's Universal Music Group to create the world's largest record company, with a current market share of about 27%.
Vivendi's stock fell on the news of its impending acquisition, in part because some European investors are worried about the prospect of continued losses at Universal Pictures, the movie-making arm of Universal Studios. However, Universal Pictures has been on a roll of late, with hits that include Erin Brockovich and U-571, and is projected by Wall Street analysts to reach the break-even point sometime in the next year. Much hinges on the fate of the upcoming Jim Carrey release, The Grinch, Universal's hope for a holiday blockbuster.
In any event, the bet that Seagram has placed on music dwarfs the company's exposure to the vagaries of the film business. Buying Polygram was an even bolder move than Edgar Jr. may have realized at the time. Bronfman did expect the downloading of music via the Internet to gain in popularity -- just not at the explosive pace of recent months.
DIGITAL CONVERT.
If he is having second thoughts about his emphasis on music, he hides it well. Bronfman, who has personally led Universal's efforts to adapt its operations to the digital era, has emerged as one of the music establishment's most vehement Internet enthusiasts. "I believe [the Internet] cuts strongly in favor of the industry," says Bronfman, who over the past year has invested more than $85 million in various digital music ventures -- including Jimmy and Doug's Farmclub.com, a successful combination Web site-TV program.
Bronfman predicts that the Internet will spur growth in the market for record music from today's $40 billion in revenues to $100 billion over the coming decade. He could be right and still lose his shirt if Universal Music can't make up in sales volume what it stands to lose in profits as the compact disk is supplanted by less lucrative digital alternatives such as subscription services. "I believe that Seagram is absolutely committed to leading the record industry in using online distribution channels," says Irene Nattel, an analyst at RBC Dominion in Toronto. "The problem is that when it comes to the bottom-line impact, no one really knows what is going to happen."
Even so, Seagram's outsized music operations are a big part of its allure to Vivendi, which is not now in the record business. As vice-chairman of Vivendi Universal, Bronfman is to have authority over a variety of operating units, most likely including Universal Music. A songwriter himself (he has been writing lyrics semiprofessionally since his youth), Bronfman takes a keen interest in the creative output of Universal Music Group.
One example: After a company music gathering last year in San Francisco, Bronfman invited Lyor Cohen, who co-heads the Def Jam Island label, to fly back to New York with him on the corporate jet. It was the middle of the night by the time they took off, but Bronfman went on at length about singer Candace Love, a recent Def Jam signee who had performed at the meeting. "Edgar kept talking about the song she'd done, how unique it was, what did we have planned for her," Cohen recalls. "He was too awake."
"SOLIDARITY."
Universal executives regularly turn to Bronfman for help in signing a filmmaker or musician. Songwriter and producer Glen Ballard was introduced to Bronfman just before his publishing contract with Universal was set to expire. Ballard, who collaborated with Alanis Morrisette on Jagged Little Pill -- the biggest-selling album of the 1990s, spent two hours talking songwriting with Bronfman. "There is a solidarity you feel with someone who truly understands what it is you do," Ballard says.
As Ballard was leaving Bronfman's office, he turned to the Universal executive who accompanied him and said, "I can't believe a guy like that owns the place." If all goes well, it looks like he won't for much longer.
Bianco is a senior writer for Business Week in New York
EDITED BY BETH BELTON
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