Among other things, the deal will have immediate implications for Seagram's 14.9% stake in media giant Time Warner.
The deal also will put Seagram in charge of a powerful media content business with virtually no conduit. That's something Seagram CEO Edgar Bronfman Jr. will likely seek to rectify as the company seeks a piece of the Hollywood limelight.
Seagram last week completed a deal to sell an $8.8 billion stake in DuPont, freeing up cash the company said could be used for "corporate purposes including acquisitions and share purchases."
Matsushita and Seagram officials confirmed their negotiations late Friday; sources said a deal could be struck last weekend. The deal is believed to be for an 80% stake, valued at $5.6 billion to $7 billion.
Sources said Mr. Bronfman was moving to secure an arrangement with DreamWorks SKG, the new studio formed by Jeffrey Katzenberg, David Geffen and Steven Spielberg, who has had long-standing ties to MCA.
However, there was speculation that Seagram may move to wed MCA with a bigger distribution concern such as CBS or NBC. Seagram could partly finance a deal with proceeds from the sale of its interest in Time Warner.
And with the network financial interest and syndication rules set to expire in November, a merger with a major studio makes sense.
CBS Chairman-CEO Laurence Tisch is believed to have recently pulled back plans to sell CBS. But Seagram might have something to offer NBC parent General Electric Co., which is said to be interested in Seagram's stake in Time Warner. Conceivably, Seagram could make a deal to trade that stake and cash for GE's NBC unit.
But executives familiar with MCA and Seagram think Seagram initially will look to improve its investment in MCA before embarking on a merger strategy.
"MCA only makes about $400 million and Seagram will need to make more money than that," said an insider.
The executive said that will likely be done by improving distribution of MCA's productions and fine-tuning its internal operating efficiencies.
Candidates to run the studio include former MCA Chairman Barry Diller, outgoing Walt Disney TV boss Rich Frank, Time Warner HBO Chairman Michael Fuchs and former NBC President Grant Tinker. Mr. Diller, who has been pursuing CBS with his own investor group, last week denied any link with Seagram's pursuit of MCA.M
Diane Mermigas of Electronic Media contributed to this story.