Vivendi Again Reduces, Delays Planned Environmental Unit IPO

The postponement until July 20 is another sign some investors are wary of French firm's deal with Seagram

By JAMES BATES, Times Staff Writer

     French utility and telecommunications giant Vivendi, which plans to buy Seagram Co. and its Universal Studios subsidiary for $34 billion in stock, scaled back further and rescheduled again an initial public offering in France of its environmental business, citing softer-than-expected demand and poor stock market conditions there.
     The development isn't expected to threaten the Seagram deal, sources said. But the news, along with the continued soft stock prices for Vivendi and Seagram, is another sign that some investors remain wary of the plan to combine the French company with the entertainment and liquor giant.
     As such, it underscores the challenge that Chairman Jean-Marie Messier and Seagram Chief Executive Edgar Bronfman Jr. continue to face in persuading investors on both sides of the Atlantic that the deal makes sense.
     Earlier this week, rumors were circulating in Paris that the Seagram acquisition could be in trouble, which a company source attributed to speculators trying to influence the stock prices.
     A Seagram source said Vivendi is moving ahead rapidly with plans, possibly within a month, for trading to begin in American depositary receipts in what will be re-christened Vivendi Universal. Nonpublic documents have already been submitted to the U.S. Securities and Exchange Commission, the source said. Those ADRs, which will trade on the New York Stock Exchange, will serve as the "currency" that Seagram stockholders will receive for their shares.
     Since news of the Vivendi-Seagram deal surfaced in June, Vivendi's shares have been hammered by investors. Vivendi closed Thursday at 88 euros in Paris, down 0.62% for the day. Vivendi shares had traded as high as 150 euros at one point in the last year. Still, they remain above the company's 12-month low of 79.10 euros.
     Likewise, Seagram's shares have suffered as well. Although shares rose $1.31 on Thursday to close at $56.25, the stock remains below its 52-week high of $65.25. Vivendi and Seagram value the stock swap at $77.35.
     Still, there is no sign yet that the deal is unraveling. The Bronfman family, which owns 24% of Seagram, is committed to voting in favor of the acquisition, and Dutch electronics conglomerate Philips Electronics has pledged to vote its 11% stake in Seagram as well. In addition, there is an expensive $800-million break-up penalty for both Vivendi and Seagram should either side scrap the deal.
     In June, Vivendi said it would offer on the Paris market roughly 35% of its environmental unit, which includes energy, water and waste management businesses. The offering is part of Messier's plan to move the company from being a staid utility into the faster growing fields of telecommunications, wireless and entertainment.
     Having the environment business as a public company, Messier believes, will make it easier for investors to understand and evaluate both the environmental operations and the wireless, telecommunications and entertainment businesses where Vivendi is betting its future will be. But a Vivendi source did acknowledge that some investors have expressed concerns about owning shares in an environmental business controlled by Vivendi when they are not fully sold on Vivendi's strategy of meshing telecommunications, wireless and entertainment businesses.
     Earlier this week, the offering was delayed a day, then Thursday was postponed until July 20 when Vivendi both lowered the price of the offering and reallocated the mix of shares to smaller investors and institutions, which in France requires the company to spend time revising its public documents.
     A company source said the change was made to placate institutional investors who feared that they wouldn't make a profit when selling their shares immediately after the IPO. In addition, soft stock-market conditions in Paris have caused several major firms to delay public offerings recently.