Vivendi stock, which shed over 10 per cent on Wednesday and nearly five percent on Thursday, opened up 2.49 per cent while Canal Plus stock opened up 4.43 per cent.

At 0710 GMT, Vivendi was up 1.57 per cent at 100 euros and Canal was trading 2.84 per cent higher at 206.6 euros.

Seagram chief executive Edgar Bronfman said that a merger deal with Vivendi and Canal Plus was "virtually complete" and that Vivendi's chairman and chief executive Jean-Marie Messier would head the combined group.

Bronfman told the latest edition of Business Week that the parties had begun talking in April and could wrap up all remaining loose ends as early as late June.

The deal, Bronfman said, would entail the acqusition of Seagram by Vivendi in a stock-for-stock swap valued at $75-$79 a share. Seagram shares rose slightly in New York trading on Thursday to close at $62-7/16.

Bronfman said the new company would be called Vivendi Universal. It would have projected revenues of $65 billion and a $100 billion market capitalisation.

Despite assurances from Messier on Thursday, investors continued to be cautious about the proposed merger, worrying about the price Vivendi will pay and Seagram's $7 billion debt.

On Thursday ratings agency Standard & Poor's put Vivendi and Seagram on CreditWatch, saying that the consolidation of Seagram's outstanding debt could "materially undermine" the diversified French group's financial profile.

Bronfman also revealed that he would be Vivendi Universal's second-ranking executive, working closely with Jean-Marie Messier.

Seagram is expected to control five of 18 board seats. The Bronfman family will be the largest group of shareholders, with an 8 per cent stake."We think of it as a partnership, but Messier will be the ultimate leader," Bronfman said.

"He's extremely smart and tough, and knows how to get things done. That's extremely important to me because this is just the first stage. There will be more opportunities for us to do more," he added.

Bronfman said Vivendi Universal would have its head office in Paris, now home to Vivendi and Canal Plus. In a related development, former-Hollywood studio chief and current cable TV mogul Barry Diller could be a big winner if Vivendi acquires Seagram Co Ltd. analysts said on Thursday.

That is because Seagram owns 43 per cent of Diller's USA Networks Inc - which has a wealth of valuable assets such as the Home Shopping Network and lucrative online commerce businesses like Ticketmaster, CitySearch and the Hotel Reservations Network.

A Vivendi-Seagram merger would give Diller a sudden entry into the European market where Vivendi has distribution rights through its Canal Plus cable network. It also has interests in telecommunications and a stake in the Internet portal Vizzavi.

Vivendi, keen to expand with the use of content from Seagram's Universal Studios and Universal Music Group, clearly also covets what USA Networks has to offer, analysts said.

"Should Vivendi and Seagram merge, it will be a strong opportunity for USA assets, particularly Ticketmaster and CitySearch, across all platforms," said PaineWebber main entertainment analyst Chris Dixon.

"Under Vivendi's ownership, USAI is likely to have more flexibility for growth, making Vivendi a far better partner for USAI than VO," said Salomon Smith Barney analyst Niraj Gupta.

Wall Street was generally high on the prospects for Diller's company, pushing USA Networks' stock up 1-1/2 to close at 22-3/4 in afternoon trading on Nasdaq. On Wednesday, it rose more than 11 per cent to 21-1/4.

Seagram, a family-owned liquor business that has branched out into entertainment under Bronfman, holds veto power over any deal Diller wants to pursue that involves more than 10 per cent of USA Networks' market capitalisation of roughly $16 billion.

Diller, who once headed 20th Century Fox studios and Fox TV operations for Rupert Murdoch, has in the past tried to acquire the NBC network, but his ambition to become a major media player was thwarted by Seagram's control.

Ironically, a year ago, Diller was close to forming what would have been a precursor to the proposed America Online Inc-Time Warner Inc merger. It would have been the kind of company that AOL-Time Warner is close to forming - a media and entertainment giant with content, distribution and a potential for unlimited revenues from electronic commerce.

However, the planned merger between USA Networks and Internet search engine Lycos Inc fell through over financing.

The once cordial relationship between Diller and Bronfman has since soured. A TV industry source said, "This is great for USA. Diller likes Vivendi and Vivendi wants to grow."

Another source added, "USA has been a company with good management and good assets. Moreover, it has one arm tied behind its back."

Diller's contract with Seagram, which Vivendi would inherit, stipulates that he can run USA Networks' day-to-day operations unencumbered for as long as he wishes. He also has the right to vote Seagram's stock in shareholder votes.

Salomon's Gupta said the Vivendi ownership would give Diller more freedom and PaineWebber's Dixon said it would allow Diller to expand Home Shopping Network and Ticketmaster overseas.

"The question is what does Diller do? Should he try and put together a group to buy out Seagram's interest or should he try to acquire Seagram himself?" asked Dixon.

"We feel USA should be trading at $29-$30 and whatever happens, it is a very interesting asset,"he said.

Some analysts suggested that Vivendi might try to buy out Diller and own USA Networks entirely. Alternately, Vivendi might decide to sell off its 43 per cent stake in USA Networks and Diller could end up with a new partner.