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No. 5

Seagram Buys PolyGram

This is one deal that did not go for a song.

With the $9.7 billion purchase of PolyGram NV, Montreal-based Seagram Co. Ltd. became the world’s largest music company. Combined with sales from Seagram’s Universal Music Group, the beverage company now controls 22 percent of the world music market, overtaking Japan’s Sony Music Entertainment Inc., with 17 percent. Analysts estimate that Seagram’s music interests will now generate 43 percent of the company’s $2.3 billion in earnings before interest, taxes, depreciation and amortization.

Once a minor player in the music industry, Seagram’s lineup now includes Elton John, Sheryl Crow, U2, Shania Twain and rapper LL Cool J. In addition, the combined companies boast one of the best distribution networks in the music industry.

The deal comprised 75 percent of Royal Phillips Electronics NV’s share of PolyGram. Originally pegged at $10.6 billion, it fell to $9.9 billion when the Dutch company agreed to take some Seagram stock in exchange for the music unit. But when the deal closed in the fall, Seagram’s shares were worth 27 percent less than their price last May when the acquisition agreement was originally struck. That drop has been attributed to the slumping box-office returns for Seagram’s Universal Pictures division and a decline in liquor sales in financially troubled Asia.

To help defray the cost of the multibillion-dollar deal, Edgar Bronfman, Seagram’s CEO and a sometime songwriter himself, plans to sell off PolyGram’s film division as well as consolidate a number of overlapping music divisions, a move expected to result in substantial layoffs.

Frank Swertlow

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