The deal announced Tuesday will combine Seagram's film production and music interests with Vivendi's European cable TV, satellite and Internet distribution systems to create a new Paris-based company, Vivendi Universal. The deal also involves Vivendi's pay-television unit, Canal Plus.
Vivendi Universal will have the scale and resources to compete with titans such as AOL Time Warner, the industry leader to be created from the pending merger of America Online and Time Warner. Vivendi Universal will have annual revenues of more than $55 billion and no debt.
The deal combines Seagram's sizable entertainment assets, which include Hollywood's Universal Studios and the Universal Music Group, the world's biggest music company, with Vivendi's various distribution channels.
Seagram's $7 billion to $8 billion drinks business will be sold off following the merger. Vivendi will also float about 30 percent of Vivendi Environment, the company's utilities arm.
The goal of the merger was to create a "single, integrated" media company, Vivendi chairman Jean-Marie Messier said in a radio interview. Vivendi is gaining a foothold in Hollywood as well as a key element Messier was missing in his own empire music.
"For the first time in Europe, there is a communication group of a size that will be able to rival all the American giants," Messier said.
The deal will be an all-stock transaction valued at $34 billion, or $77.35 per Seagram share. Seagram's stock has been rising since news of the merger broke last week, gaining $2.563 to $64 in Monday trading on the New York Stock Exchange.
"It fulfills a number of needs for both companies," said Dennis McAlpine, a media and entertainment analyst at Ryan, Beck & Co. "It gives the Bronfman family a graceful way out of the entertainment business, and it gives Vivendi an American platform."
The markets have not reacted well to the proposed merger. Vivendi's stock has slipped since last week when news of the impending fusion emerged. Messier brushed off the reaction as simply "speculators playing with stock."
Vivendi stocks were down 6.6 percent Tuesday in Paris,, while Canal Plus traded down 7.7 percent before trading was temporarily suspended.
Once just a nationalized water company, Messier has transformed the firm into a global media giant with classy headquarters just off the Arc de Triomphe in Paris, one of the French capital's most prestigious addresses.
The deal is likely to lead to a shake-up at Canal Plus, the French pay-television company in which Vivendi has a 49 percent stake. Vivendi is expected to buy out the 51 percent of Canal Plus that it does not already own and spin off the TV acivities to avoid conflict with French government rules on ownership of domestic TV channels.
Messier was named chairman of the new company. Seagram head Edgar Bronfman Jr. will be vice chairman with responsibility for music and all Internet activities.
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