The Unmaking of a Dynasty
Dreaming of a global media company and driven by blind ambition, Edgar Bronfman Jr. shed the crown jewels of his grandfather's empire and nearly destroyed the family fortune.
From the Print Edition:
Edgar Bronfman Jr., Mar/Apr 03
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As for Edgar Jr., the weight of family responsibility had pressed down on him ever since he agreed to join Seagram two decades ago, after a brief and unsatisfying stint as an independent Hollywood film producer. His own grandfather, who never took his vast wealth for granted, believed in his darker moments that his grandchildren would one day undo all he had built. Hence, his now prophetic remark: "Shirtsleeves to shirtsleeves in three generations. I'm worried about the third generation. Empires have come and gone." Think that didn't prey on Junior's mind? He once vowed publicly not to go down in history "as the one Bronfman who pissed away the family fortune." And there's little doubt that that apprehension played no small part in the thinking that led him into Messier's eager embrace when there seemed no other road left to take. Messier says Edgar mentioned it as they were putting the finishing touches on their deal.
There's no doubt Edgar Jr. had expected a far different outcome after taking the Seagram torch from his father in 1994. Although not the oldest son (he's the second of seven children, four of them boys), he was the only member of the family whom Edgar Sr. thought capable of succeeding him at the helm of Seagram, a distiller that Sam Bronfman acquired in 1928. Over the next six decades, it would grow into a global force in the booze business, thanks to a strong distribution system and an expanding stable of wholly owned and licensed brands that would come to include such big-selling libations as VO Canadian and Crown Royal whiskey, Chivas Regal and Glenlivet Scotch, Seagram's Gin, Mumm Champagne, Martell Cognac, Absolut vodka and Captain Morgan spiced rum. Seagram was also by far the largest shareholder in chemical giant E.I. DuPont de Nemours, with 24 percent of the stock. Between the booze and the DuPont dividends, Seagram raked in vast profits year in and year out, good economy and bad, putting the family high on the list of North America's richest people. The DuPont holding, which Seagram acquired in 1981 as its share of the spoils in a takeover battle for oil giant Conoco, represents Edgar Sr.'s finest business achievement. Yet within less than a year after Edgar Jr. took over the day-to-day operations of the company, it would be gone, sold back to a delighted DuPont at 13 percent below the market rate, to help Edgar Jr. launch his bold foray into Hollywood.
Charles, who was always much less willing "to roll the dice," in his brother's apt description, was deeply unhappy about his nephew's decision to take the family into the profit-challenged world of entertainment -- starting with his $5.7 billion investment in 1995 in MCA, which gave him 80 percent of the company (subsequently renamed Universal Studios). Charles revered the family's wonderful but lately neglected liquor holdings and loved those steady DuPont dividends. As long as the booze flowed and DuPont stayed solvent, Charles knew that his children and the generations to follow would never have to worry about their bank balances. But Edgar Jr. had no desire to run what he viewed as an old-fashioned business stuck in a rut, whose best source of income was a passive stake in a boring chemical company. And his father agreed.
Hollywood beckoned, as it had earlier when he was a starry-eyed teenager who decided that college wasn't for him. (Edgar Sr. had had his own flirtation with showbiz in the late 1960s as a partner in a small TV production company and briefly as part of a group in control of MGM; but these were separate from Seagram. Sam had regarded Hollywood as nothing but a "whores' business" and an expensive way to meet women). The difference was that this time Edgar Jr. would be arriving as a major player with Seagram's billions at his disposal. The industry's sharks, people like Michael Ovitz, David Geffen and Barry Diller, whom he counted as friends and advisers, began circling even before his corporate Gulfstream V had landed. It didn't take long for industry veterans to pounce on Junior's lack of expertise and experience, on his costly early hiring mistakes and other management miscues, on his reliance on outside consultants and his strange notions of industry economics. In the press, he was portrayed as a lightweight dilettante drawn to the industry's glitz and glamour, a bumbling rich kid ripe for the picking. As one anonymous Hollywood executive famously opined at the time: "He's like a piñata! Hit him and money comes out."
Yet Seagram's move into entertainment was not some sudden whim. Edgar Jr. was well aware of the pitfalls, as well as the opportunities. In 1993, when he was Seagram's No. 2 executive, he signaled his intentions by accumulating 14.9 percent of Time Warner's stock. But his father never liked companies that were heavily regulated, and that would include Time Warner, with its huge cable systems (which is somewhat ironic, considering that Vivendi itself is more under the thumb of government than any U.S. player.) Smaller MCA, Edgar Sr. felt, was a far better takeover target and a lot easier to swallow. Besides, its unhappy Japanese owners were eager to unload it for about what they had paid in the first place.
Charles was almost certainly the only person who could have stood in the way of his nephew's ambitions and who had enough clout on the board to do so. But it would have caused a deep family rift, and he wasn't about to take that fateful step. He still remembered the bitter split decades earlier between his own father and his uncle, Allan Bronfman. To keep Allan's children from having a say in the running of Seagram, Sam forced him to sell a large amount of stock at below-market rates. The breach never healed, and Charles, a kind and sensitive man, never forgot. "Family is simply more important than money to Charles," says one person who knows both sides of the family well. "There weren't going to be any fights." Then, having gone along for the Hollywood ride for the sake of family unity, he was in no position to object in 1998 when Edgar Jr. snapped up Polygram, the world's biggest music company, for $10.4 billion. Or when his nephew reached the fateful decision that on its own, Seagram would never be big enough to swim with the entertainment industry's biggest fish.
By the time Messier came calling with an all-stock takeover bid then valued at $33.6 billion, Seagram's once sound balance sheet had been badly eroded by Edgar Jr.'s aggressive deal making. Long-suffering shareholders and even Junior's staunchest outside critics acknowledged that, on paper, the Vivendi bid was simply too good to turn down. Here at last was a measure of vindication for the oft-maligned scion. With the apparent coup, he could finally show the world that his Hollywood gamble had been worth it, that he had created genuine value that would not have been possible if Seagram had stuck solely to boring old booze and chemicals. It was as if he was telling his grandfather: "See, I made us richer, so stop glaring down at me." And even better, he had boosted the family's chances of playing a lucrative role in cutting-edge media, telecom and communications businesses that would dwarf anything Seagram could have done on its own. Or so he thought.
Before deciding that Vivendi-Seagram was a match made in heaven, Edgar had sounded out every other possible partner or buyer for Seagram's mix of showbiz assets, but had come away empty-handed. He had become convinced that Seagram would never be big enough on its own to take on a Walt Disney, Viacom, News Corp. or AOL Time Warner -- especially the latter, a combination of new and old media that looked positively scary on paper. The AOL deal has since turned out to be frightening only to the hapless investors that bought the online giant's New Economy doublespeak about the joys of convergence, of getting all that wonderful Time Warner content to all those grateful AOL eyeballs. But at the time it struck fear in the hearts of new and old media moguls everywhere, and none more so than Edgar, with his passionate belief in the vast potential of the Internet. Then along came Messier, a virtual unknown outside of France but with an intriguing collection of cable, telecom and Internet assets, a yen for more, and a willingness to pay a juicy premium to get what he wanted -- and which Edgar absolutely had to have to sell the deal to his family. "It's easy to say now that they backed the wrong horse," says a Wall Street investment banker who was familiar with some of the Seagram discussions. "But Messier was the only horse willing to pay up for it. There were no other horses."
The brash Messier, who was then 43, had even bolder dreams than Edgar Jr. and a much bigger ego. He entitled a book about his brilliant career J6M, short for Jean-Marie Messier, Moi-Meme, Maitre du Monde (myself, master of the world). The nickname came from a satirical puppet show running on his own cable channel in France, and he claimed to be mocking himself, although few who knew him believed that. Messier realized that there was one key missing piece as he constructed his New Economy media giant flying the French tricolor -- a major Hollywood studio that could provide the content to stuff into all the new telecom, cable and Internet pipelines he was building. The only one available, at a price beneath the stratosphere, was owned by the Bronfmans.
Not even the free-spending Frenchman could live with Edgar Jr.'s laughable asking price of $100 a share. But he did cough up $77.35, a fat 45 percent premium and more than enough to persuade the family to say farewell to its beloved Seagram, with the appropriate tears welling in their eyes. The Bronfmans could have taken a combination of cash and stock. But their well-documented aversion to taxes, coupled with the conviction of both Edgars that the markets would quickly realize what a brilliant future lay in store for the new company, led them to request all stock. They traded their control block of 24.6 percent of Seagram for more than 8.6 percent of Vivendi, making them by far the biggest shareholder, but with no money to show for it. It would prove to be a costly blunder.
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