UNIVERSAL FEATURED IN SELLOFF RUMORS.

Byline: Marla Matzer Rose Staff Writer

UNIVERSAL CITY - The studio that brought you such horror classics as ``Dracula'' and ``The Mummy'' has become the land of the undead rumor. And investors are buying into it.

Longstanding speculation that Universal Studios and its theme park operations will be sold by the Seagram Co. has heated up in the past month, driving Seagram stock up more than 30 percent since the beginning of the year.

Neither Seagram, the Montreal-based firm that made its fortune in liquor, or Universal are commenting. Possible suitors are denying interest. Sources say no deal is pending.

But all this hasn't stopped analysts and investors from playing a Wall Street version of ``Who Wants to Be a Millionaire.''

The favorite guessing game on the Street these days seems to be identifying what the next big media merger will be, with Seagram looking to many like a prime target. The latest buzz has Seagram putting Universal's filmed entertainment and recreation divisions on the block for between $5 billion and $6 billion.

Not even a slight downgrading by one investment firm put much of a damper on Seagram stock. Toronto-based CIBC bumped Seagram down from ``strong buy'' to ``buy'' on Friday.

Seagram shares fell about 6 percent - but remained not far from their 52-week high of $65.

What does Seagram have to say about this? Not much. ``We don't comment on rumors and speculation. We don't comment on the movement of our stock,'' said Anita Larsen, a New York-based spokeswoman for Seagram. Universal representatives in Los Angeles similarly had no comment.

And people connected with the studio, who did not want to be identified, deny rumors of a sale.

``It's not happening, period,'' said one source, who pointed out that Seagram CEO Edgar Bronfman Jr. told investors in November that he didn't plan to sell Universal.

It's worth noting that in the business world, denials are often quickly followed by deals.

These Universal whisperings are nothing new. Rumors that Bronfman would sell his money-losing studio have been floated since at least early 1998, when Barry Diller's USA Networks Inc. bought Universal's U.S. television operations for $1.3 billion and a 45 percent stake in USA.

Diller has been the most frequently named suitor for Universal. Like Bronfman, he has continued to claim he has no intentions in that regard.

``We can't keep denying this every hour of the day,'' Diller said testily Thursday, in a conference call to discuss USA's yearly results. Other possible bidders for Universal that have been bandied about include DreamWorks SKG. Director Steven Spielberg's studio already has a relationship with Universal, and could benefit from a coupling with another media company. Rupert Murdoch's News Corp. is reportedly a suitor.

Bronfman supporters stress that Seagram's stock in USA is now worth more than $8 billion, more than Seagram paid Japanese conglomerate Matshushita for 80 percent of Universal in 1995. Seagram now controls more than 90 percent of the studio.

No one denies, though, that Universal hasn't proved a great investment so far for Seagram. The company sold stock in the blue chip DuPont Corp. to pay for the Universal purchase; the DuPont stock soared to be worth billions more than Seagram sold it for, while Universal's fortunes sagged.

This past year did see a significant turnaround in Universal's box office fortunes. The company ranked a close third behind Disney/Buena Vista and Warner Bros. in the Hollywood Reporter's annual ``studio scorecard.''

Though films like ``EdTV'' and ``Mystery Men'' were disappointments, the studio scored big with smashes such as ``The Mummy'' and ``American Pie.''

It will take more than this to get Universal's movie division into the black: analysts expect Universal to still lose money this fiscal year, which ends June 30, though far less than the previous year.

Bronfman himself warned investors in late 1999 that it would be at least several more quarters before the filmed entertainment division was expected to make money.

The current sale-watch is surely heightened by the recent wave of media mega-deals, particularly America Online Inc.'s announcement a month ago that it would purchase Time Warner Inc. Investors immediately started looking for the next likely candidate for a sale, zeroing in on Universal and a few other companies, such as the NBC network.

Speculation has run toward Seagram selling its recreation division, which includes Universal Studios Hollywood and Florida, along with the film unit. The parks' attractions are closely tied to films in Universal's library, such as ``Psycho'' and ``Jaws.''

Bronfman is less likely to shed the music division anytime soon, though: it has been profitable - with such hit acts as Shania Twain and Limp Bizkit - and has been the market share leader since its acquisition of PolyGram.

Bronfman also has a personal passion for music. Under the pseudonym Junior Miles, he's penned songs for such stars as Celine Dion.

If Seagram were to keep music, that unit would make a natural partner for an Internet firm a la the Time Warner-AOL deal. Music has emerged as the most immediately-exploitable entertainment commodity on the Internet.

CAPTION(S):

photo, chart

Photo: Bronfman

Chart: Universal theory