InTheSpotlight: U.S. Investors to Vivendi: Show Us The Details in the Seagram Deal

The U.S. m&a community’s response to the three-part merger of Vivendi SA, Seagram Co., and Canal Plus SA has been a variation on the “God is in the details” theme, with bankers and potential investors feeling shortchanged on specifics. “There’s a real absence of good information. How do you know what to do with this company when you don’t know what you’re getting?” says Tom Burnett, an analyst at Merger Insight, New York. The brass tacks of the deal, announced in June, call for Vivendi to acquire Seagram in a stock deal, initially valued at $34.4 billion. The former French water and utility company simultaneously had announced plans to acquire the 51% stake it doesn’t already own in pay-TV company Canal Plus for $12.1 billion in stock. In the long term, Vivendi chairman Jean-Marie Messier’s plan to refocus the formerly staid French water company into a digital age “pipes” and content delivery company has many supporters. “There’s no question that the deal has an enormous amount of rationale going for it,” says Christopher Dixon, a media analyst at PaineWebber Inc. But Dixon also faults the execution of at least the early stages of the merger. “It looks like they’ve gotten some ham-handed merger advice. The concept is great, but they have to learn how to talk to U.S. investors.” Dixon says he doesn’t have access to the portfolio of assets held in Vivendi. “They haven’t listed the historical pro forma cash flow or the proportionate cash flow. I’ve been following these kind of deals since 1987, and if I can’t figure this thing out, how is the average investor going to do any due diligence?” Dixon also adds that the merger was done backwards because with the transaction structured as a stock deal, Messier “rushed to judgment” to take advantage of Vivendi’s lofty valuation in June. Now U.S. investors are waiting for Vivendi to list on a U.S. exchange, which, according to Dixon, should have been the company’s first step. When the U.S. investment community gets the proxies, it will be its first opportunity to evaluate the deal, Dixon says. The earliest estimate for the filing of these SEC documents is late August. When the proxies are filed, it will give the U.S. arbitrage community a chance to trade on the deal. This activity will supply at least a baseline for what the shares in the new company are worth. Dixon says that when this is done, the next step should be to schedule a road show that will acquaint investors with where Messier thinks the company is going. A third step will be getting U.S. and European regulatory approval for the deal. This could occur as early as October. But despite the complaints about the lack of communications and the scarcity of information about the deal, most U.S. observers are betting that it will get done. “Chances are this deal will work,” says Barry Hyman, an analyst at Ehrenkrantz, King & Nussbaum in New York. He noted that the agreement carries steep breakup fees. Hyman says that the challenge for Vivendi is to prove to shareholders and potential shareholders that the company offers something better as a media conglomerate than it did in its previous incarnation. “The visionary concepts are certainly more exciting than the former water business was,” Hyman comments, but he adds that the trick will be to make them more rewarding as well.