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Seagram Shares Tumble Despite Glowing Report

Media: Analysts say stock drop reflects skepticism that Bronfman will soon sell the company.

March 09, 2000|From Times Staff and Wire Reports

Seagram Co., whose stock has risen about one-third this year on speculation the media and beverage company will be sold, saw its shares drop sharply Wednesday despite a glowing presentation to analysts by Chief Executive Edgar Bronfman Jr.

During a meeting in Orlando, Fla., where the company wined and dined about 150 analysts, Bronfman said he expects the company's loss-plagued Universal Studios Inc. film business to return to profitability in 2001.

Seagram also expects cash flow at Universal Music Group, the industry's largest record company, to rise to $1 billion in its fiscal year ending in June, up 16% from pro forma $861 million last year.

Despite the optimistic predictions, Seagram's stock fell $3.19 to close at $57.81 on the New York Stock Exchange.

Some analysts and investors believe the stock drop reflects skepticism that Bronfman will soon sell.

"It doesn't look like he wants to sell," said Barry Hyman, an Ehrenkrantz, King, Nussbaum Inc. analyst with a "buy" on the shares. "He's presenting a very positive story."

"He will sell at the right price, but he would have to get a substantial premium, which is questionable right now," Hyman said. He believes Seagram would have to be offered more than $75 a share.

Bronfman is known to be looking at a host of alternatives for the company in the wake of Time Warner's pending merger with America Online, including potential combinations with Barry Diller's USA Networks and Rupert Murdoch's News Corp. No deal has been struck, however. Bronfman has not commented publicly on any specific deal, but insists that he plans to continue running the company and that Seagram is not for sale.

Seagram's Universal Pictures film studio has been losing money with such box-office flops as "Man on the Moon" and "Mystery Men." Bronfman told analysts that Universal Pictures "has a strong strategic plan to return the business to profitability in fiscal year 2001."

Bronfman also said Seagram's recreation business, which includes theme parks in Florida and California, is on track to reach its goal of $450 million in cash flow by June 2003. The spirits and wine business is expected to see cash-flow growth in the mid-single digits in fiscal 2001, and the division is expected to continue to outperform competitors, he said.

Cash flow measures earnings before interest, taxes, depreciation and amortization. Media analysts use it as a measure of performance because it excludes interest payments and noncash charges.

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