Skip to Content
Stock Analyst Update

Big Risks Remain for Seagram Investors

The pending creation of Vivendi Universal is fraught with uncertainty.

What Happened?
Seagram (VO) reported Wednesday that revenue declined 3% to $3.5 billion in its fiscal first quarter. Removing the negative effect of foreign currency fluctuations, revenue would have increased 2%. While revenue grew slowly, EBITDA (earnings before interest, taxes, depreciation, and amortization), a proxy for cash flow, increased 32% to $466 million. Continued strength at Universal Music and substantial improvement at Universal Pictures powered EBITDA growth. The company also announced that it has received all necessary regulatory approvals for its pending merger with Vivendi (V) and Canal Plus (CNPLY) to form Vivendi Universal. The shareholder vote is set for December 5.

What It Means for Investors
While Seagram's results showed continued improvement, we are concerned about possible merger risks, and thus investors may want hold off buying. There could be considerable problems integrating three companies from different parts of the world with different cultures. Also, tangible risks surround the expected sale of Seagram's alcohol business and the separation of noncommunication assets from Vivendi. Streamlining these assets will be critical if the combined firm expects to reduce its debt load and meet its aggressive 35% EBITDA growth target in 2001 and 2002.