Fool.com: Vivendi and Seagram Unite[Breakfast With the Fool] June 20, 2000

"God made the world round so we would never be able to see too far down the road." -- Isak Dinesen, Danish author

BREAKFAST WITH THE FOOL
Vivendi and Seagram Unite

By Richard McCaffery (TMF Gibson)
June 20, 2000

Investors that thought music, movies, and spirits company The Seagram Co. (NYSE: VO) was already a lot to put their arms around probably won't think its $34 billion merger with French communications and utility company Vivendi and pay television provider Canal Plus makes things any easier to understand.

They're probably right.

Full disclosure: My eyes glaze over at the thought of this merger. I don't have any business insight into why it may or may not work; it's just that I'd rather paint closets than think about this deal.

Nevertheless, the combination, which would create a company with $55 billion in revenues, is an ambitious attempt to combine Seagram's content with Vivendi's distribution network. Seagram owns Polygram Records and Universal Studios; Paris-based Vivendi owns a mobile telephone network along with media and publishing businesses.

The new company, called Vivendi Universal, will be the world's second-largest media organization, behind only the proposed America Online (NYSE: AOL), Time Warner (NYSE: TWX) duo, The Wall Street Journal reported.

We've heard talk of great synergies between content and distribution companies before. Shareholders know how difficult it is in practice to create them.

Under terms of the agreement, Seagram shareholders will receive $77.35 worth of Vivendi stock for each of their shares, a 21% premium to Seagram's closing price yesterday. The deal has a collar that fixes the exchange rate at 0.800 Vivendi shares in case the French company's stock falls below $96.69 or moves above $124.30.

Vivendi Universal plans to sell Seagram's venerable liquor business, which should help focus the new entity on its entertainment and communications strategy. Seagram's wine and beverage unit includes top-shelf brands such as Chivas Regal, Absolut Vodka, and Captain Morgan rum.

As for Canal Plus, its broadcast and subscription television business is the third partner in this very slow dance. Vivendi is buying the 51% stake in Canal Plus that it doesn't already own.

News to Go

Storage area networks hub manufacturer Gadzoox (Nasdaq: ZOOX) warned that fiscal first-quarter revenues may fall as much as one-third short of last quarter's mark because of excess inventory in the sales channel. The company expects revenue to trail expectations for the next two quarters.

Broadband chip maker Broadcom (Nasdaq: BRCM) is being added to the S&P 500 to replace GTE (NYSE: GTE), which is being bought by Bell Atlantic (NYSE: BEL).

World-leading cruise ship operator Carnival (NYSE: CCL) reported second-quarter net income of $204 million, or $0.34 per diluted share, compared to net income of $203 million, or $0.33 per diluted share, a year ago. The company beat estimates by three cents, but said that higher fuel costs and lower net revenues slowed earnings. Revenues increased 9% to $875.1 million from $796 a year ago.

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