Street ponders a Bronfman-Vivendi Music Group pairing
Street ponders a Bronfman-Vivendi Music Group pairing
NEWS & COMMENTARY; MARKETS
September 3, 2003 Wednesday
NEW YORK (CBS.MW) -- When Vivendi Universal agreed Tuesday to conduct exclusive talks on the sale of its U.S. entertainment assets with General Electric's NBC unit, Edgar Bronfman Jr. looked like the odd man out.
But that gloomy scenario may soon change for Bronfman if he makes a move to obtain Vivendi's Universal Music Group, the largest in the entertainment industry.
Bronfman, a Vivendi vice chairman who originally sold the company those Universal properties a few years back, lost out to behemoth GE (GE) in a lengthy, highly public auction for the right to negotiate with Vivendi (V) to acquire the French company's U.S. entertainment assets.
"My guess is that there is something going on," said Michael Holland, president of money manager Holland & Co. in New York and a long-time GE stockholder. "Where there is smoke, there is fire."
The properties that GE stands to scoop up include the Universal film studio and library, the Sci-Fi and USA cable-television channels, and theme parks. Conspicuously, Vivendi's music business was not a part of the dealings, indicating that GE had no interest in acquiring the volatile enterprise.
Vivendi has said it wants to retain the music division, but, of course, the company's sentiments can change abruptly.
Todd Holland, a spokesman for Bronfman in New York, said he had no comment on the speculation.
Vivendi's stock closed up 35 cents, or 1.9 percent, to $18.60 on Wednesday.
GE has the agenda of a publicly traded company. Perhaps its shareholders would not have been happy about seeing GE, which has gained an outstanding reputation for generating predictably steady earnings growth over the past two decades, tumble into such an unpredictable business.
For that matter, maybe GE anticipated their unease and reckoned in advance that a move to dive into the up-and-down movies business would be daring enough for one deal.
GE's stock has done well in the hours since the Vivendi announcement was made, rising another 74 cents, or 2.4 percent, to $31.18 on Wednesday.
But Bronfman has no such worries as a private individual investor. While he and his partners, including Cablevision Systems (CVC), were understandably disappointed at losing out in Vivendi's auction, the music business would represent a nifty consolation prize.
Bronfman has an appreciation for music stars. One look at last week's MTV Video Music Awards telecast would be enough to reveal to an onlooker that the music business is wild and the more eccentric and flamboyant an artist acts and dresses, the better his or her chances are at obtaining publicity and its twin, stardom.
"Edgar Bronfman has an affinity for the music industry," noted Ken Marlin, a media investment banker in New York. "He would certainly be interested in being a player."
A few years ago, when Bronfman was honored in New York at a black-tie dinner at the 92nd Street Y, the Bee Gees were scheduled to entertain the overflow audience. When the singing group had to cancel at the last minute, Bronfman managed to come up with a wonderful replacement: Motown singer Smokey Robinson, who lauded Bronfman from the stage.
At the same time, the music business would be a major challenge -- no matter how long Bronfman's patience is or how deep his pockets are.
"The music piece doesn't fit because people are getting so much of their music for free by downloading it," said James McGlynn, manager of the Summit Everest Fund (SAEVX) in Cincinnati and another GE stockholder.
"This is not one of the jewels in the crown here," McGlynn said. "But wouldn't it be ironic if Bronfman, after all his angst in this deal, ends up with the music business? This is not something that has a hugely bright future, given where the technology is going."
Still, there could be an ideal fit: Bronfman has long had an affection for the music business, and his acquisition of it could enable Vivendi to slice further its burdensome debt load and gracefully exit an industry that is riddled with volatility.
Bronfman is a vice chairman of Vivendi who resigned from the French company's board of directors to try to acquire the assets. Even though Bronfman had more experience than NBC in the movie business -- through the acquisition of Universal Studios while head of Seagram Ltd. -- and proposed a highly competitive bid, Vivendi rejected him.
It's no slam-dunk that Bronfman could waltz away with the music group. He could have to face off other bidders or, in a personal nightmare for him, might encounter yet another bombastic auction for the property.
Last April, for instance, Apple Computer (AAPL), whose iPod technology has shaken up the music industry, was reportedly in negotiations to acquire the Universal Music Group for $6 billion. UMG and Apple executives declined comment on the alleged talks at the time.
Universal amasses about $6 billion annually in sales from such wide-ranging performers as U2, Shania Twain, 50 Cent and even Luciano Pavarotti.
"Ultimately, music is too easy to pirate these days," said McGlynn. "Bronfman has the cash and the experience. The question is what company has debt -- and needs his cash?"
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