The widely expected deal announced Thursday allows Seagram to leapfrog competing conglomerates Time Warner and Sony in music and balance its entertainment holdings amid a long box-office slump at Universal Studios.

Seagram plans to sell its entire stake in Tropicana in a public stock offering shortly to help pay for PolyGram. The company expects to gain $3.5 billion to $4 billion from the sale of Tropicana, which it bought for $1.2 billion in 1988.

''These announcements herald an important transformation of Seagram,'' said Edgar Bronfman Jr., whose family built the liquor business that made the company famous.

Bronfman brought Seagram into the entertainment business with the purchase of MCA, now known as Universal Studios, for $5.7 billion in 1995.

Dutch electronics maker Philips Electronics agreed to sell its 75% stake in PolyGram, which owns the Motown and Mercury labels and whose artists include U2, Sheryl Crow, LL Cool J, Elton John and Luciano Pavarotti. The remaining stake in London-based PolyGram is publicly held.

Seagram will add PolyGram's overseas strength to its successful U.S. music business, which includes artists such as Beck, Erykah Badu, the Wallflowers and Vince Gill. Its labels include Universal, MCA and Interscope.

The addition of PolyGram will give Seagram annual revenue of about $18 billion. After the sale of the juice business, Seagram would have $16 billion in revenue, with nearly 70% coming from entertainment.

Bronfman said the company remains committed to its wine and spirits business, which includes such brands as Absolut vodka, Chivas Regal whisky and Captain Morgan rum.

The company said it also would consider selling PolyGram's film division to help pay for the acquisition.

PolyGram's earnings rose 17% last year, helped by the smash debut of the young brother trio Hanson, as music sales offset losses from films. But this year's first-quarter earnings plunged 88% as music sales dropped 6%.

PolyGram's film business has produced hits such as Fargo and Four Weddings and a Funeral, and its 1,500-film library includes The Graduate and When Harry Met Sally.

Management of Universal Studios and PolyGram would meet immediately to decide who would run Seagram's various entertainment businesses, which also include television production.

There was no mention of what role PolyGram CEO Alain Levy would play in the new company. Levy was named PolyGram's chief eight years ago and has overseen the acquisitions of U.S. record labels including Island, A&M and Def Jam.

Doug Morris, a longtime former executive of Time Warner's music business, is the chief executive of Seagram's Universal Music Group.

Seagram shares, which have been trading higher all day in anticipation of a PolyGram deal, were up $3.75 at $44.75 at the close of trading on the New York Stock Exchange. PolyGram's U.S. shares were up $1.75 at $56.87 1/2, below Seagram's planned purchase price of $59 per share.

Some shareholders are still smarting from Bronfman's decision to sell the company's stake in DuPont to fund the MCA purchase. DuPont stock has more than doubled since the sale, while gains in Seagram shares have lagged the broader bull market since the company's foray into entertainment.

A variety of other suitors, including several buyout firms and an investment group led by former Walt Disney President Michael Ovitz, were reportedly interested in PolyGram but never made bids.

The PolyGram deal comes after Seagram reportedly failed to strike a deal to buy Britain's EMI Group, whose artists include the Rolling Stones and the Spice Girls, and ended negotiations earlier this month.

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