Significantly changing the lay of the land for AOL Time Warner, Vivendi, Seagram and Canal+ have agreed to merge in a $34 billion (US$) all-stock deal.
The new Paris-based company, called Vivendi Universal, will combine the Canada-based Seagram’s entertainment interests — which include Universal Pictures and the Universal Music Group — with Vivendi’s European telecommunications and Internet infrastructure.
The companies say that Vivendi Universal will provide content, e-services, and e-commerce.
Global Media Powerhouse
When the merger is complete, Vivendi Universal will control the rights to an unrivaled collection of content: over 9,000 movies, 27,000 television episodes, and over 750,000 songs, as well as the means to distribute them via television and the Internet.
The new company’s movie content will be drawn from the storehouses of Universal Pictures, producer of such films as Erin Brockovich, Gladiator, and American Pie, and from Canal+, which co-produced U-571 with Universal. The companies believe that these films represent an enormous asset and a source of steady cash flow as the demand for access to filmed content grows.
Music will come from the Universal Music Group, whose roster of artists includes Shania Twain, Dr. Dre, and U2. Vivendi Universal’s stash of TV series includes such classics as Magnum, P.I., Law and Order and Colombo.
The new company will have a 42 percent equity stake in USA Networks, which includes the Sci Fi Channel, the Home Shopping Network, TicketMaster, the Hotel Reservations Network, Gramercy Pictures and October Films.
Vivendi Universal will distribute content via both TV and the Internet. The company anticipates its new Internet portal Vizzavi, which was launched Monday with British partner Vodafone AirTouch Plc, will provide a major distribution channel for Seagram’s entertainment content, video games, chats, and e-services.
Other assets coming to the new company include Universal’s Recreation Group, which operates Universal Studios Hollywood, Universal Studios Orlando, and Universal Studios Port Aventura in Barcelona, Spain.
Inside the Deal
Under the terms of the merger agreement, which was approved unanimously by all three companies’ boards of directors, Seagram shareholders will receive Vivendi shares equivalent in value to $77.35 for each share of Seagram common stock. This figure represents a premium price for Seagram, which closed at $64 on Monday and was downgraded by Salomon Smith Barney from buy to neutral Tuesday morning.
The precise number of Vivendi shares to be exchanged for Seagram shares will be subject to the collar — should Vivendi’s stock trade below $96.69 the swap rate will be fixed at 0.8 and should it trade above $124.30 the swap rate will be 0.622. The transaction will be tax-free to Seagram shareholders in the United States and Canada.
Vivendi, which already owns 49 percent of Canal+, will give Canal+ shareholders two shares of Vivendi stock for each share of Canal+ stock.
The deal also calls for Vivendi to assume $7 billion of debt along with Seagram’s assets, but will likely be erased through the sale of Seagram’s beverage business, which includes Chivas Regal whiskey and Absolut vodka.
The deal, which is subject to shareholder approval and regulatory review in the European Union, the United States, and Canada, is expected to close before the end of the year.
Management of the new company will be a melded affair, with Vivendi’s Messier acting as chairman and CEO and Seagram president and chief executive officer Edgar Bronfman, Jr. as vice chairman with responsibility for music and all Internet activities.
The Vivendi Universal Board of Directors will initially have 20 members, including Vivendi’s current 14 board members, the chairman and CEO of Canal+, and five new members from Seagram’s board. Seagram’s representatives will include three members of the Bronfman family, which owns 23 percent of Seagram and two independent directors from the company’s existing board.
The companies say the new business will initially have combined revenues of $55 billion and will be listed on the Paris, New York, and Toronto stock exchanges.