Seagram Buys PolyGram

In a move that establishes its leadership in the entertainment business, Seagram Company has purchased PolyGram NV from Philips Electronics NV of Holland. The deal was valued at $10.6 billion.

The sale had been in discussion for two months, and is a major change for both of the huge companies. Philips, 75% owner of PolyGram, is best known as the co-developer of the Compact Disc. The Dutch company manufactures electronics for the consumer, medical, scientific, and engineering markets, and has long operated its own mostly-classical music label. Seagram, primarily known for its liquor business, owns Universal Studios and the Universal music enterprise.

The purchase of PolyGram, whose 16.7% market share gives it domination of the world music business, launches Seagram into a prominence in the entertainment industry comparable to that of media conglomerates Time Warner and Sony Corporation.

Despite its world dominance, London-based PolyGram, which owns the Motown and Mercury labels, is in last place among the major labels in US sales, according to Patrick Reilly of the Wall Street Journal. A prolonged slump in the music business has made deals such as the Seagram/PolyGram acquisition attractive, Reilly mentioned in a recent analysis of probable mergers. EMI is also reported to be looking for a buyer. With 15.3% of the market, EMI ranks second to PolyGram, and is valued at approximately $7.8 billion.

Reilly concurred with the music industry's widely held belief that flat sales can be largely attributed to the fact that there is no new technology to drive the market. It is unclear whether DVD-Audio or any of its multimedia variations will enjoy the sucess of the CD.

Seagram announced that it would sell its Tropicana juice business in a public stock offering to offset its purchase of PolyGram. Tropicana could bring as much as $4 billion, almost four times the price Seagram paid for it in 1988. Three years ago, Seagram bought Universal (then known as MCA) for $5.7 billion.

Two-thirds of Montreal-based Seagram's projected annual $17.4 billion revenue will now come from entertainment. "These announcements herald an important transformation of Seagram," said company chief Edgar Bronfman, Jr.