When America Online (NYSE: AOL) announced its planned merger with Time Warner (NYSE: TWX) back in January, speculators pondered the possibilities of potential mergers for other Internet/media players, but no truly threatening force has yet emerged. Now, with Seagram Co. (NYSE: VO) hanging out its for-sale sign, mega-merger maniacs are turning their attention to the spirits and entertainment giant. The new AOL/Time Warner super combo is getting its first look at its competition.
France's Vivendi SA released news today that they are in talks with Seagram and Canal Plus (a major European cable operator and film studio, already a Vivendi subsidiary), to create the potentially most lethal challenger to AOL/Time Warner's impending creation.
By acquiring Seagram, Vivendi would enter behemothdom by adding Seagram's Universal Movie Studio and Universal Music Group to its current stakes in BSkyB (a satellite TV company), AOL France (an Internet Service Provider), and its current joint venture with Vodafone Airtouch (NYSE: VOD). That's a media monster mighty enough to make Godzilla and Shaquille O'Neal quake in their non-media boots!
The new mega-media giant is the brain child of Vivendi Chairman Jean-Marie Messier, an aggressive leader who is now hoping to transform the French utilities conglomerate into a global media giant. In that regard, it has a lot in common with Seagram, which has already been transforming itself into a mini media mogul by recently selling off several beverage operations in order to focus on its Universal Studios and Universal Music Group businesses. The transformation was costly, however; the film division produced disastrous fiscal results in 1999, as a result of producing such flops as Babe: Pig in the City. (Hated the movie; loved the name.)
This merger, if it occurs, will not be as seamless as AOL/Time Warner, however. Vivendi has indicated that it will eventually spin off its non-media holdings in Europe, which include OTV, US Filter and Culligan, as well as Seagram's liquor business. Apparently, media conglomerates can't hold their water. These businesses, from water distribution to waste management and construction, currently account for more than half of Vivendi's revenue. Selling these businesses and reorganizing the company could be extremely time consuming, and distract management from its primary new focus of media dominance, leaving AOL/Time Warner the opportunity to cement its position as Top Dog in this newly emerging kennel.
While the power structure of the new AOL/Time Warner company seems to have satisfied everyone (except for an unhappy moment or two for Ted Turner), there's speculation that Seagram's Chairman, Edgar Bronfman, Jr., may be a little less than happy about reporting to someone else. Perhaps he needs to brush up on his French. The success of all these transitions will be highly dependent upon the competence of management not to screw things up.
As more companies reach out to consume each other, will more companies be motivated to turn their attentions towards merging, providing yet more competitors to the field? One wonders when Disney's going to finally get into the race. With its less-than-successful Internet attempt at GO.com (NYSE: GO), it's falling to the rear of the pack in the taking-over-the-media-world race. In order to compete in the global arena of the big media boys, Disney may have to arrange some strategic alliances to keep an in-your-face presence for AOL/Time Warner.
Both Vivendi/Seagram and AOL/Time Warner are competing for dominance of the global music business, as Seagram's Polygram Records battles EMI, which is trying to merge with Time Warner. This merger is currently being investigated by the European Commission, which is concerned that the potential consolidation will hurt consumers by reducing competition. The commission fears that "Time Warner/EMI will control by far the largest number of copyrights in the world and would be considerably larger than the next largest competitor."
Some consumer groups are actually welcoming the deal, as they see potential price savings and new services that will come with the integration of the two companies' catalogs and distribution channels. A ruling is expected next week.
The race for leadership in the new world of Mega Media conglomerates is heating up. We'll be carefully watching to see that Rule Breaker AOL stays on the forefront of the battle.
And now, late breaking news from the land of Folly:
On the heels of these mega-mergers, the Rule Breaker think tank is hearing rumors about the formation of the first mega-media-telecommunications-genomic-coffee company ever: AmazOnlineBayCelerabucks@Home. It is believed to be the first such Internet-based-discount-auction-house-genetic-research-coffee firm of its kind (and is contributing on the upside to hyphen futures). The FCC, the Justice Department, and Judge Penfield Jackson are beside themselves trying to figure out who to investigate first.
Analysts at Merrill Lynch believe the combined company will not only be the first to map the human genome, but to sell it at deep decaffeinated discounts and at auction to boot.
Competitors are up in arms, environmentalists are up in arms, even arms dealers are up in arms. There are fears that the new company will genetically alter coffee beans and sell them at auction houses. Coffee companies are up in arms that Starbucks will now be able to decode the gene for desiring coffee, and create a world dependent on a genetically hopped-up java, thereby manipulating world markets and human nervous systems.
Fool on!
