Seagram poised to buy into Hollywood

Seagram's aspirations to become a leading player in the global entertainment business may soon be satisfied by buying a large stake in MCA, the Hollywood film studio business owned by Matsushita of Japan.

Speculation was rife in California yesterday that Seagram, better known as a Canadian drinks company, will strike a deal with Matsushita before Easter.

To pay for the stake Seagram is likely to sell its 24.3 per cent stake in Du Pont, the chemicals company, for $10bn (£6bn). The stake was bought in 1981 as a consequence of the battle between Seagram and Du Pont for control of Conoco Oil.

Most of the Hollywood studios were bought by Japanese companies in the 1980s at what, at the time, seemed to be excessive prices. The investments have as yet to yield good returns due to a policy of using multi-million dollar retainers to keep production talent on board, and a few lean years of good films.

Japanese companies, however, made it clear that they were taking the long-term view and more investors are becoming keener to invest in the industry. This is mainly due to the growth in film sales to satellite and cable television companies, as well as the expanding home entertainment markets of buying and renting videos.

A sale of part of MCA would be timely for Matsushita. Having locked up $6.6bn when it bought the company in 1989, it now needs vast amounts of research and development funds to push ahead with plans to bring out a universally accepted compact disc video.

The need to sell some of MCA has also become more urgent because returns on Matsushita's investment have been depressed by the dollar's depreciation against the yen.

Seagram yesterday declined to comment on the speculation, although Edgar Bronfman, the chief executive who succeeded his father last year, makes no secret about his desire to further the company's involvement in the film and entertainments business.

Stock market traders in the US and Canada also construed Seagram's tight lipped approach to speculation as confirmation that a deal was in the offing. In early dealings on the Toronto exchange, Seagram's shares dipped almost C$1.5 to C$43 (£19.6), while on Wall Street the price of Du Pont gained $1.5 to $62. Du Pont is seen as the most likely buyers of Seagram's stake.

Seagram's attempts to break significantly into the entertainments business have so far been frustrated. Mr Bronfman last year persuaded fellow directors to sink $2.2bn in a 14.9 per cent stake in Time Warner. However, the studio company became alarmed at Seagram's manoeuvres and responded by building a classic American poison-pill defence into its share to thwart a Canadian take-over.

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