No longer a booze baron, Bronfman pours Seagram into a global Internet venture
Edgar's New Page
No longer a booze baron, Bronfman pours Seagram into a global Internet venture
By Barry Came in Paris
As a birthday gift, it ranks in a league all its own. Few others, in fact, would dare attach such a label to the breathtaking $50-billion merger announced last week between Seagram Co. Ltd. of Canada and Frances Vivendi SA. But that is exactly how Edgar Bronfman Jr., Seagram’s chief executive, chose to characterize what amounts to an audacious manoeuvre in corporate empire building, designed to fashion a transatlantic media behemoth to rival such global giants as AOL Time Warner. “Today is my father’s birthday,” declared Bronfman last Tuesday, perched uneasily on a stool in Vivendi’s Paris headquarters, just around the corner from the city’s celebrated Arc de Triomphe. “And I can think of no better present to give to my father, his children, his grandchildren and his great grandchildren than this world-beating company that we are creating today.”
If there was a defensive edge to Bronfman’s remarks, it was not misplaced. For he is the third generation to run the family business, a sprawling empire that rose from a humble base of bootlegged booze and Canadian Prairie brothels to become a major player in the international distillery, media and entertainment business. Under the canny guidance of Bronfman’s colourful grandfather Sam, his father, Edgar Sr., and himself, Seagram has grown into a powerful conglomerate, the corporate parent of Hollywood’s third-largest movie studio, the world’s third-largest liquor manufacturing and distributing business, and the largest music company on the planet. But the curtain is now about to fall on the Bronfman era. Control of the company that Sam built will soon pass out of the family’s hands. And Sam’s grandson is responsible. “Regrets?”
asked Edgar Jr. last week in Paris, brisding a little at the question. “None at all. I’m proud of what we’ve accomplished here today. It completes Seagram’s transformation from a traditional company into a leading force in the global media and entertainment industry.”
That much is certainly true, on paper at least. When Vivendi Universal, as the new entity has been christened, finally clears all of the complex management and regulatory hurdles it still faces, it will be outranked as a global media company only by AOL Time Warner. What it does, in essence, is marry the content of Seagram’s Universal film and television studios, music group and theme parks to Vivendi’s extensive distribution systems, a network that includes France’s Canal Plus pay-television service (which Vivendi will spend another $18 billion to acquire in full), as well as the fledgling Internet portal Vizzavi, a gateway for a potential 80 million European subscribers seeking access via cable television, personal computers and wireless telephones. Revenues of the combined companies, which also include Vivendi’s water-utilities business from earlier times, are expected to reach $80 billion annually. “We are going to make the Internet swing,” vowed Jean-Marie Messier, the ebullient former
The Seagram saga
1889 Sam Bronfman is born in Soroki, Bessarabia, the third child of Russian immigrants en route to Manitoba. He shows an early entrepreneurial flair, and by 1916 has bought a liquor store in Montreal. After U.S. Prohibition begins in 1920, he builds a thriving business supplying American smugglers.
1928 Sam buys Joseph E. Seagram and Sons, a Canadian whisky firm. The end of Prohibition in 1933 leads
Seagram to expand aggressively in the United States. Sam adds many more products, such as Chivas Regal and Mumm’s champagne.
In 1957, son Edgar becomes U.S. chief at 28, but Sam is still in charge.
1971 Sam dies. In accordance with his edict that only one child shall control the company, Edgar takes over and buys into du Pont chemicals and, briefly,
MGM studios. His brother Charles helps at Seagram and initiates ventures of his own, becoming, in 1969, the founding owner of the Montreal Expos.
1989 Edgar Jr. becomes president and chief operating officer and begins making changes, such as focusing on premium liquor brands.
1994 Edgar Jr. succeeds his father as CEO. He promptly sells traditional assets, such as the 24-per-cent share of du Pont, and plunges into the entertainment business, picking up TV and movie company MCA Inc. in 1995 and recording company PolyGram NV in 1998.
2000 After months of talks with potential partners, Edgar Jr. announces Seagram’s sale to French conglomerate
Vivendi SA and says
the liquor business
will be sold.
v,™ 1ÛOÛ “Vs-* $18.3 billion
French civil servant who is Vivendis chief executive and who will serve in the same capacity at Vivendi Universal.
Bronfman, who will be vice-chairman in charge of music and Internet operations at the new company, claimed it was Vivendi s expertise in both wireless telephones and the Internet that initially prompted him to seek a merger. “The oppormnities for growth in these areas are truly extraordinary,” he remarked, pointing especially to the emerging new market for downloading music onto wireless telephones and
other media. Seagrams Universal Music Group, as PolyGram NV was renamed when the Canadian company bought the business in 1998, is already a world leader in the industry with operations in 59 countries and a roster of talent that includes Shania Twain, Dr. Dre, Sheryl Crow, Sting and U2. According to
Bronfman, the global music business is likely to grow from $60 billion to $150 billion as digital delivery fuels an online boom. “At the moment, you have 50,000 to 65,000 music retail outlets around the world,” he said. “More people than that join Yahoo! every day.”
Vivendi is well placed to exploit the phenomenon. Canal Plus has more than 14 million subscribers in 11
countries. Vivendi owns 25 per cent of BskyB—Rupert Murdochs European satellite television operation. Vizzavi, the new Internet portal, is a joint venture with British-based Vodaphone AirTouch, the worlds largest operator of mobile telephones. “We have the capability,” said Messier, “of making the Internet of tomorrow not only something faster and more beautiful, but also a vehicle with more practical services, information and entertainment.”
Despite the promise, not everyone is yet convinced of the longterm merits of Vivendi Universal. The markets, in both Europe and North America, remained skeptical. By week’s end, Vivendi shares had fallen 19 per cent (while Seagram’s rose 17 per cent) since news of the merger talks surfaced two weeks earlier. “Mergers are extremely difficult in the best of times,” commented Montreal investment counsellor Stephen Jarislowsky. “There must be a big cultural difference between the two companies. To the extent that I hold Seagram’s
shares, I don’t know whether I really want to own Vivendi shares. And I think that’s what the stock markets have been saying.”
Part of the problem is the deal itself. It is a complex affair—structured to take account of any movements in Vivendi share prices. No cash is involved. Rather it is a straight stock swap, which values Seagram shares at $77.35 (U.S.), a figure that amounted to a 53-percent premium over the market price before the deal rumours began swirling. The Bronfman family, which owns 24.6 per cent of Seagram, will acquire roughly eight per cent of the new company and five Seagram seats on the 18-member board of directors.
In yet another sign of the changes being wrought by Edgar Jr., Seagram will shed its long association with the liquor business. “Our
wines and spirits division,” Bronfman said, “will be finding a new home.” The most likely candidate is the British-based drinks and fast-food group Allied Domecq, which was reportedly preparing an $11-billion bid to acquire virtually all of the brands that have helped make Seagram famous—Chivas Regal and Glenlivet Scotch whiskies, Crown Royal and V.O. Canadian whiskies, Captain Morgans rum, Martell cognac and Absolut vodka.
For some industry observers, the move is one more example of Bronfmans poor handling of the mantle he inherited from his father and grandfather. “I never thought Edgar Bronfman Jr. made a great international executive,” said Montreal-based Jarislowsky, a close friend of Charles Bronfman, Edgar Jr.’s
uncle. “I thought that ever since they got rid of their share of the du Pont company [sold by Edgar Jr. in 1995] and bought the movie company and then the record company that it was the wrong direction to move.”
While that view is widespread, it is not shared by everybody. “I think he has had a bit of a rough ride from the financial community,” remarked Toronto analyst Jeremy Burge, a managing director of TD Securities Inc. “The share price now is a lot better than where it was. He has a good management team around him. I just think he’s an easy target, the third-generation rich guy.”
The final, and most crucial, verdict on Bronfman’s performance rests with his relatives—his father, his uncle and all of the cousins in the multitudinous Canadian clan. None offered an opinion in public last week on the latest stunning development in the family’s fortunes. In Paris, the heir to the Seagram throne claimed the family was solidly behind the deal with Vivendi. At the same time, he pointed out that any of the Bronfmans had the right to sell their shares in the new company 90 days after the deal’s completion late this year or early next. In the meantime, family members can enjoy the luxury of contemplating Edgar Jr.’s billion-dollar birthday present.
With Brenda Branswell in Montreal and Patricia Chisholm in Toronto
The story you want is part of the Maclean’s Archives. To access it, log in here or sign up for your free 30-day trial.
Experience anything and everything Maclean's has ever published — over 3,500 issues and 150,000 articles, images and advertisements — since 1905. Browse on your own, or explore our curated collections and timely recommendations.WATCH THIS VIDEO for highlights of everything the Maclean's Archives has to offer.