BUSINESS

TAKING CHARGE

The new CEO of Seagram defends his controversial stake in Time Warner

BRENDA DALGLISH June 13 1994
BUSINESS

TAKING CHARGE

The new CEO of Seagram defends his controversial stake in Time Warner

BRENDA DALGLISH June 13 1994

TAKING CHARGE

BUSINESS

The new CEO of Seagram defends his controversial stake in Time Warner

After he added chief executive officer to his title of president of The Seagram Co. Ltd. last week, Edgar Bronfman Jr. did not need to be reminded that he is the third generation of his family to run the multinational liquor company. Bronfman is all too aware that family fortunes often begin to fade after the demise of the founder. By the third generation, after decades of luxury and excess, many family-run businesses dwindle into mediocrity or worse. But Seagram founder Sam Bronfman’s grandson—who has a family that is so rich that he spent half a million of his father’s dollars making his first movie at the age of 16 and has had his own table at New York City’s posh Four Seasons restaurant since he was 19—wants to be an exception to the rule. In an interview after Seagram’s annual meeting in Montreal last week, the 39-year-old Bronfman turned philosophical. His grandfather, he noted, used to quote an old adage often hurled at wealthy inheritors: “Shirtsleeves to shirtsleeves in three generations”—shirtsleeves connoting the working class. Sam would say: “Not in my family, God damn it!” Young Bronfman has a photograph in his office of Sam in shirtsleeves, peering over his bifocals and playing solitaire. “Every morning I look at that picture of Poppa and I remember that remark,” he said.

In fact, the Bronfman family, which directly owns 36.4 per cent of Seagram, has so far defied the downward pull of rich man’s gravity. Bronfman’s father, Edgar Sr., chairman and CEO of Seagram since Sam died in 1971, handed over the CEO title to his son just days before his 65th birthday on June 20. At the annual meeting, Edgar Sr.’s brother, Charles, co-chairman of the company, noted that $1,000 invested in Seagram shares at the time Edgar Sr. took over 23 years ago would be worth $23,000 now. Said Edgar Sr.: “Charles and I are very proud of the fact that not only did we not destroy the fortune my father created, we increased it quite substantially.” Edgar Sr. achieved that strong performance at Seagram mainly by acquiring a 24per-cent stake in E. I. du Pont de Nemours and Co., of Wilmington, Del., a multinational chemical company. (Seagram acquired the du Pont shares in exchange for $2.7 billion (U.S.) worth of Conoco Inc. shares that it accumulated in a failed 1981 bid to take over the oil company. Seagram’s du Pont shares are currently worth about $10 billion). Now, Edgar Jr. is following in his father’s footsteps: over the past year, he has spent $2 billion to buy a 14.9-per-cent stake in Time Warner Inc., a diversified entertainment and communications company. It is an initiative fully supported by Edgar Sr. “I believe that in the not-too-distant future it is inevitable that we’re going to have to go to a four-day work week,” he told Maclean’s last week. “It’s the only way we’ll be able to get employment up. And that’s going to be good for the entertainment business and for the whisky and beverage business.” As for turning the company over to his son, he said, his blue eyes watering: “I know he’s the right person and I’m very proud.” Despite that fond paternal sentiment, the Time Warner investment is a controversial one. Some industry analysts say that Seagram

THE HOUSE OF SEAGRAM

Bronfman family trusts own 36.4 per cent of The Seagram Co. Ltd. shares. Seagram owns 24 per cent ofE. I. du Pont de Nemours and Co. and 14.99 per cent of Time Warner Inc.

Total sales: $6 billion (all amounts in U.S. dollars)

Total profit: $650 million*

Seagram Beverages Operation Profit $265 million Products: Chivas Regal scotch, Martell cognac,

Mumm champagne, Tropicana orange juice

Du Pont

Total sales: $38 billion Seagram’s share of profit:

$380 million

Products: Teflon, Dacron, Kevlar, herbicides, pesticides

Time Warner

Total sales: $14 billion Seagram’s share of profit: $5 million Divisions: Warner Bros. Films, HBO, Atlantic records, Time, DC Comics

*before one-time charges

paid so much for its stake in heavily indebted Time Warner that it will be years before the investment begins to pay off. Others wonder whether Bronfman will try to gain control of the $35-billion company, which owns cable television companies, record companies, a top movie studio and a collection of magazines. Edward Atorino, an investment analyst with Dillon Read and Co. Inc. in New York, said: ‘Time Warner is the best entertainment company.” But he added, “Of course, it’s a big gamble. No one knows yet what the consumers are going to want and what they’ll be willing to pay for it.” Bronfman used the shareholders’ meeting—which continues to be held in Montreal because that is where the company was founded, even though both Bronfman and his father are now U.S. citizens and work at Seagram’s headquarters in New York—to address the uncertainty about Seagram’s intentions. He told the meeting: “In my view, those concerns [about Time Warner], though entirely without foundation, have significantly depressed our share price.” Bronfman denied the possibility of a Time Warner takeover bid. ‘We’re not,” he declared emphatically, “going to go beyond 14.99 per cent” Following Bronfman’s comments, Seagram’s shares climbed $1 to $29%, still slightly under the shares’ 52-week high.

Bronfman’s background in the entertainment business has lent weight to the speculation that Seagram may take a run at Time Warner. As a young man, he chose to work in the movie business rather than go to university. He writes song lyrics, including those for Whisper in the Dark, a song that Dionne Warwick recorded. And he has produced three movies, including the The Border, starring Jack Nicholson, in 1980 when he was 25. While he was still in high school, Bronfman also co-produced a movie called The Blockhouse, set in Poland during the Second World War. Describing that movie in a recent interview in The New Yorker magazine, the serious Bronfman even came close to displaying a flash of humor when he said: “It was dark and it was depressing. And absolutely no one wanted to see a movie that took place underground with seven men slowly starving to death.”

But Bronfman insists that his early film-making had nothing to do with the Time Warner investment. In fact, Seagram’s connections to the entertainment industry go back to Edgar Sr.’s interest nearly 30 years ago when he bought a 15-percent stake in the movie studio Metro Goldwyn Mayer. Although

he soon lost the stake when MGM was taken over by Kirk Kerkorian in 1969, Edgar Sr., like his son, faced some tough immediate questions about the reason for his investment. “My father walked into my office,” recalls Edgar Sr., chuckling, “and he said, ‘Why are we buying all this MGM stock?’ I talked about the moving image and the value of film libraries and the fact that television would gobble it up. And he said, ‘No, that’s not what I mean. I want to know if we’re buying all this stock so that you can meet some women.’ And I said ‘Father, nobody has to spend $56 million to get laid.’ ”

Although critics suggest that the Time Warner investment is merely a bid by a spoiled rich kid to dabble in moviemaking, Bronfman is weathering the taunts with grace. He points out that movies represent only about 12 per cent of Tune Warner’s business. ‘To suggest that Seagram wants to get into the film business and then buys into a company where the film business represents just 12 per cent of the company doesn’t seem very logical,” he said. “If people want to treat me as a rich-kid dilettante, it’s their privilege. I’m just going to point I hope, to my record over time.”

In the meantime, Bronfman says that Seagram will begin a major “re-engineering” of all its operations. The goal will be to lower costs and improve operations. He denies that austerity measures are required because of the $2 billion that the company has spent buying Time Warner shares. He said: “If we want to be the best-managed beverage company in the world we have to keep improving. Period. Debt or no debt.” The restructuring is likely to include layoffs among the company’s 15,000 employees around the world. “There aren’t too many other kinds of costs,” said Bronfman, adding: “Costs will be eliminated, tasks will be eliminated and therefore it may be that there will be some layoffs.” Since 1984, when Bronfman began running Seagram’s U.S. operations, he said that the company’s American workforce has been reduced by 55 per cent, as the company sold off many of its non-premium brand names. Bronfman says that he is prepared to cut more jobs if necessary. “It is a very difficult thing to do,” he said. “I’ve done it before.”

In fact, Bronfman said—as his beautiful second wife, Clarissa, a Venezuelan oil heiress with a degree in industrial relations, looked on—he has come to enjoy the challenges of Seagram more than almost anything. “First, it’s personally extremely fulfilling; I like managing and I think I’m reasonably good at it,” he said. “And secondly, there’s a tremendous pride in our family in the company. It is both a responsibility and a privilege to be able to continue that association between the company and the family.” He says that he has absolutely no desire to make another movie. “I did that,” he said. “I aspire to other things now. I’ve been given a greater opportunity.” It seems that Sam Bronfman’s dynasty may be safe from shirtsleeves for at least one more generation.

BRENDA DALGLISH