Seagram, the drinks company, was last night in negotiations to buy a controlling interest in MCA, the Hollywood entertainment group owned by the Japanese electronics giant Matsushita.
Although both companies continued to decline to comment, details emerged in Montreal and New York that Seagram would pay up to $7bn (£4.4bn) for 80 per cent of MCA.
Seagram's shares were off neary $2 to $26 in morning trading, as investors expressed concern about the company's move into entertainment.
Standard & Poor's, the credit rating agency, put MCA under review, specifically citing the expected change in ownership. If successful, the MCA sale would mark an embarrassing exit for Matsushita, which paid $6.5bn for the company only five years ago.
Seagram, which distributes Absolut Vodka and Chivas Regal and owns 15 per cent of entertainment and information conglomerate Time Warner, has made no secret of its desire to build a presence in the entertainment market. Its chief executive, Edgar Bronfman Jr, 39, grandson of Seagram founder Samuel Bronfman, has dabbled in movie production and believes that the market for movies and music delivered directly to the home is poised to grow exponentially.
Seagram, 36 per cent-owned by the wealthy Montreal Bronfman family, would have little trouble financing the deal out of proceeds from the sale on Thursday of most of its stake in Du Pont, the chemicals company, for $8.8bn. Du Pont is buying back the shares for $1bn in cash, $7.3bn in 90-day notes and equity warrants worth $440m. Seagram said the sale constituted a stock redemption for tax purposes, lowering the tax bill on the deal. Du Pont plans to pay for the purchase out of cash flow, asset sales and a $2.5bn share issue later this year. Analysts estimate that the buyback will significantly increase earnings per share at Du Pont.
MCA's Universal Pictures was the fourth-highest box-office earner in the US last year, with gross receipts of $657m, thanks to hits such as The Flintstones and Schindler's List. The studio has been responsible for some of the highest-grossing films in Hollywood history, including ET, Jaws and Jurassic Park, all directed by Steven Spielberg. MCA also owns the Universal Studios theme park, the Cineplex-Odeon cinema chain, United Artists and MCA Records.
Matsushita, a leading electronics manufacturer, had sales last year of $79.9bn. It had hoped to create an integrated business, making films and music as well as the equipment on which to play them. But Japanese management has struggled with MCA, arguing with the studio's executives while attempting to impose cost controls. The Japanese company is to concentrate on its electronics business, where research and development costs have been rising as competitors race to create the next generation of home-entertainment equipment.
Analysts were mixed in their view of a Seagram purchase of MCA. Some said North American management would be better at extracting value from MCA's entertainment holdings, and stressed the drinks company's proven ability in marketing and distribution. Others marked down Seagram's earnings per share by $1 for 1995 and predicting a shaky start for MCA's new owners. Sony, which bought Columbia/Tri-Star, another Hollywood movie producer, in 1989, is expected to review its investment in coming months.
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