Seagram in Merger Talks With Vivendi, Canal Plus

Updated from 7:41 a.m. EDT

Paris-based Vivendi and its pay-television subsidiary, Canal Plus, are in talks to purchase entertainment and liquor giant Seagram (VO Quote).

Shares in Seagram rocketed 8 1/8, or 15%, to 61 1/8 in early trading Wednesday.

The aim of the deal would be to create an entertainment powerhouse to rival the likes of the hook-up between America Online (AOL Quote) and Time Warner (TWX Quote) by combining Seagram's content with Vivendi and Canal Plus' distributional assets. Non-media businesses, such as Seagram's drinks division, would likely be spun off, according to a source familiar with the negotiations.

A deal could be announced within two weeks, said the source, and could value the company at around $75 a share, or $37.2 billion.

The combined company would have a market capitalization, based on present valuations, of close to $100 billion and combined revenues, before selling any assets, of $65 billion. Edgar Bronfman Jr., Seagram's chief executive officer, would likely be vice-chair of the combined company, said the source. The Bronfman family owns about 25% of Seagrams.

According to a brief statement made by Seagram Wednesday, the company was initially approached by Canal and Vivendi and the discussions involve creating a "three-way strategic business combination," in which Seagram shareholders would be compensated with shares of stock in the combined entity.

"Discussions are not completed and there is no certainty that an agreement will be reached or a transaction consummated," according to the statement released by the Montreal-based company.

Both Canal Plus and Vivendi confirmed the talks in a brief announcement, but cautioned investors: "If the discussions ultimately lead to a transaction, movements in share prices between this press release and the announcement of an agreement will not be reflected in the financial terms set forth in any such agreement."

The release followed reports in Wednesday's Wall Street Journal and New York Times.

Seagram operates four global business units: music, film, recreation, and liquor and wine. It owns Universal Music Group, the world's largest recorded music company, and also several cable channels. Vivendi operates two core businesses, water and waste treatment, and entertainment. It owns 49% of Canal Plus and is prohibited by French law from raising its stake.

Alan Gould, an analyst who covers Seagrams for Gerard, Klauer Mattison & Co., expects a minimum of $75 per share, or a $5 premium over what he believes is fair value for the company at $70 per share. He has a buy rating on the stock and his firm has not performed underwriting for Seagrams.