(2 of 3)
In the U.S., where Federal Trade Commission Chairman Robert Pitofsky calls the wave of mergers "unprecedented," regulators are scrutinizing matchups like AOL-Time Warner for indications that the partners might use their clout to deny rivals access to their networks. In part to fend off regulators, AOL last week filed plans to open its wildly popular instant-messaging system to other Internet providers. A Vivendi-Seagram deal would probably face less U.S. scrutiny, since most of its distribution channels would be in Europe. European regulators, however, will take a hard look, just as they said they would do last week with Time Warner's proposed buy of Britain's EMI music group. Says Marion Boucher Soper, who follows media mergers for Bear, Stearns: "[Regulators] are going to put AOL-Time Warner through every hoop they can."
Combining Vivendi (1999 revenues: $41.8 billion) and Seagram ($12.3 billion) would bring a fat payoff for Edgar Bronfman Jr. and the entire Bronfman family, which owns nearly 25% of Seagram. Bronfman has had to endure endless Hollywood brickbats since his father tapped him for the top job in 1994. Outsiders ridiculed the Bronfman scion, who writes pop songs under the pseudonym Junior Miles, as a star-struck dilettante when he jettisoned Seagram's lucrative 24.2% stake in DuPont and used the proceeds to buy Universal. It didn't help that DuPont stock promptly doubled, as Seagram's own shares sparkled less than flat Champagne. Yet Bronfman stubbornly stuck to his show-biz guns. He shelled out $10.4 billion for Polygram music in 1998, making his family's 76-year-old liquor business look like a sidelight. Bronfman has since been shopping his empire to the usual mogul suspects: Viacom CEO Sumner Redstone and News Corp. founder Rupert Murdoch, among others.
Sensing an opportunity, Messier approached Bronfman last October. Seagram possessed the kind of content-producing assets that Messier's distribution channels thirsted for. Talks between the two men heated up in January following word of the AOL-Time Warner deal. But the discussions nearly collapsed last spring, before both companies settled on a stock swap that would value Seagram at about $75 a share--a roughly $25 premium above its recent price.
Bagging Seagram would anoint Messier as a media mogul alongside the Murdochs and Redstones of the world. As Messier recently told TIME, "Fusing content and media [distribution] has been Vivendi's strategy since Day One." He says the merged entity will become "a totally integrated group with full control over its operations."
Operationally, Messier will have his hands full. Universal lost $206 million in the past fiscal year. Erin Brockovich's boffo box office (expected U.S. gross: $125 million) could help, particularly if Julia Roberts wins an Oscar for Best Actress. But studio chief Ron Meyer will doubtless be sent packing by Vivendi, which reportedly plans to replace him with Pierre Lescure, chairman and CEO of Canal Plus. Messier must also decide what to do with Seagram's 45% stake in Barry Diller's USA Network, which has cable channels and film- and TV-production facilities. Diller has feuded with Bronfman since the Seagram heir scotched Diller's 1998 run at NBC.