The deal was just the latest step in the transformation of Seagram under 42-year-old chief executive Edgar Bronfman Jr and followed the $5.7-billion purchase in 1995 of most of Hollywood Studio Universal, then MCA Inc.

Montreal-based Seagram also said it planned to spin off its Tropicana fruit-juice business and that it was looking to sell Polygram's filmed-entertainment unit. Dutch-based Philips Electronics NV owns 75 per cent of PolyGram.

"With the acquisition of PolyGram, we become a global entertainment leader, including the world's largest music company, with a truly impressive roster of musical talent," Bronfman said in a statement. Seagram estimated it will reap $275 million to $300 million in annual cost-savings by integrating the two record labels.

The deal will, however,reduce the Bronfman family's stake in Seagram to 29 per cent from 35 per cent, Bronfman said at a news conference. He also said Seagram will take on an additional $6 billion in debt for the deal, bringing its total debt level to $8.5-9 billion. Bronfman said Seagram expected to take a $700 million charge for the deal sometime this year.

Seagram and Philips last week confirmed they were holding discussions following weeks of market speculation. Other potential buyers also had expressed interest in the music company but never made formal offers.

PolyGram is home to rock superstars like Elton John and U2. Universal, which owns the MCA and Geffen record labels, has acts such as country and western artist Reba McEntire. Seagram, which owns liquor brands Chivas Regal, AbsolutVodka and Grolsch beer, bought 84 per cent of Universal several years ago. Besides the music business, Universal also owns the famed Hollywood studio, television operations and theme parks.

Seagram said it would use proceeds from theTropicana sale, estimated at $3.5-4 billion, to pay part of the cost of acquiring Polygram. The balance will be paid for with loans and by selling other assets.

"We've been extremely pleased with the performance of Tropicana, which we bought for $1.2 billion in 1988. But as Tropicana grew into a more valuable asset, we concluded that the increased value was not being fully reflected in Seagram's share price," Bronfman said in a statement.

He declined to comment on the potential management structure that will develop by joining Universal and PolyGram. "It's our hope that we're going to be able to bring both managements together and keep the best of both organisations as we go forward," he said.

Philips chief executive Cornelis Boonstra will join Seagram's board of directors after the deal is completed.