Vivendi Takeover Ends Seagram Empire

The transformation of one of Canada’s oldest and most familiar business brands entered its final stage on June 20, 2000, with the formal announcement that Canadian drinks and entertainment giant Seagram Co. will merge with French utilities and media conglomerate Vivendi SA in a deal valued at US$34 billion. The deal also includes Vivendi’s entertainment arm, Canal Plus SA, which will acquire the 51 per cent of Canal Plus it doesn’t own for around US$12 billion.

The merger will combine Seagram’s film production and music interests, which includes the world famous Universal music and film units, with Vivendi’s European cable TV, satellite and Internet distribution systems. The media operations will be run as a new group to be called “Vivendi Universal” which is destined to provide the first European competition to other American global media giants such as AOL-Time Warner.

The merger has been seen as a good complementary fit between the two companies, however Vivendi has announced plans to sell off Seagram’s US$7 billion beverage business, which was the foundation of the Canadian empire, as well as 30 per cent of Vivendi’s utility arm. The new company plans to concentrate on technology and media operations.

Vivendi’s CEO, Jean-Marie Messier, will run the combined entity, while Seagram’s CEO, Edgar Bronfman Jr., will become a vice-chair. The Montreal-based Bronfman family, which controls Seagram with 24 per cent of the company’s equity, will be the biggest shareholder in the merged company.

The deal is being structured as an all-share deal and will utilize an enhanced exchangeable share mechanism to ensure that Canadian shareholders receive equal tax benefits from their French and US counterparts. The structure will be similar to that developed for the Newbridge Networks and Alcatel deal, which was the first instance of such a structure in a Canadian/French transaction, but will provide tax deferral of up to 30 years, as opposed to the 5 years provided to Newbridge shareholders. The tax deferral enables Canadian institutional shareholders to hold their interest longer without the investment being considered foreign property.

As an additional enhancement, Canadian Seagram shareholders will hold voting rights in Vivendi Universal. The voting rights have been created out of the French corporate aspects of the transaction rather than through the special voting share concept, which has been used in exchangeable share transactions between US or UK and Canadian companies.

Blake, Cassels & Graydon LLP are acting as Canadian counsel to Vivendi on the deal with a team led by Alan Bell, and that includes Jeff Kerbel, Craig Thorburn, Robyn Keinick (corporate and securities), Jim Hausman, Leslie Morgan (tax) and Michael Piaskoski (regulatory). Cravath, Swaine & Moore are US counsel to Vivendi with a team led by Faiza Saeed, and that includes Ron Cami (corporate and securities) and Lewis Steinberg (tax). French counsel to Vivendi is Bredin Prat with a team led by Jean Francois Prat and Olivier Assant. Osler, Hoskin & Harcourt LLP are Canadian counsel to Seagram with a team of lawyers led by Clay Horner and which included Don Gilchrist, Dana DiBartolo and Bert Clark (corporate and securities), Monica Biringer and Steve Suarez (tax) and Peter Franklyn (competition). US counsel to Seagram is Simpson Thacher & Bartlett with a team that included John Finley, Brian Stadler and Sarah Cogan. French counsel to Seagram are Gide Loyrette Nouel with a team that included Youssef Djehane, Didier Martin and Hugues Mathez. Goodman Phillips & Vineberg are advising the Bronfman family on the deal with a team that includes Michael Vineberg and Robert Raizenne.