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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In a poorly negotiated deal, the Bronfmans failed to properly protect themselves if Vivendi's stock price fell dramatically. Although advised by the Wall Street investment firms Goldman Sachs and Morgan Stanley, the final decision was with the Bronfmans and their lawyers. This was not an uncommon practice during the raging bull market of the late '90s, but it would have dramatic consequences. By the time the transaction closed in December 2000, the dot-com bubble had burst, media and Internet stocks were tanking, and telecom, particularly the wireless kind in which Vivendi had an enormous investment, would soon join them in the gutter. In the end, the Bronfmans took away not the $77.35 worth of Vivendi Universal stock they were expecting, but $54. This was the first sign that Edgar Jr.'s Deal of the Century could end up putting a severe dent in the family's fortune. And there would be plenty more to come.
Even before locking up Seagram, Messier put the booze and wine operations on the auction block. Charles took a long look at joining some Seagram managers, and other corporate investors, to mount a buyout, but backed off. He was upset by the sharp drop in the value of the Vivendi deal before it closed and was particularly bothered by the prospect of overpaying for something that the Bronfmans had owned in the first place. It would be the last time a member of the family would try to preserve the Seagram name. The business, which generated about $6 billion in sales annually, was later divided between two longtime rivals, Diageo and Pernod Ricard, for $8.1 billion. This meant Vivendi was essentially acquiring a Hollywood studio, valuable theme parks, real estate and the world's biggest music company debt-free because the Seagram's sale offset those other companies' debt.
Instead of proceeding conservatively, Messier seemed to take the new conglomerate's financial well-being as a cue to go on a wild spending spree. Like a shopaholic with a no-limit credit card, he threw billions at acquisitions, all in the name of convergence, an idea already thoroughly discredited in the eyes of investors and the industry's more sober leaders, who had come back to earth with a thud after their dizzying ride on the Internet bubble.
Messier spent $2.2 billion to buy Houghton Mifflin, the leading U.S. textbook publisher, $1.5 billion for a stake in EchoStar Communications, the satellite TV provider, and $3.2 billion for USA Networks, the television business that Edgar Jr. had previously sold to Barry Diller in the most controversial move of his Hollywood years.
In a particularly complex $4.1 billion deal in 1997, the younger Bronfman had swapped Universal's TV production arm, which churned out such programs as "Law and Order," "Xena: Warrior Princess" and "Jerry Springer," and two popular cable channels, USA Network and Sci-Fi Network, to Diller in exchange for $1.2 billion in cash and a 45 percent stake in Diller's company, which also included a home shopping channel, online ticketing, Internet travel and some other small pieces. When Diller stepped down or died, Seagram would have the right to retake control. But in the meantime, Diller would call all the shots. Edgar Jr. trumpeted this as a great coup. One of Hollywood's business legends would take on the job of reviving the struggling TV operations, while Edgar would get his hands on extra cash to pour into movies, theme parks and music; and control would revert to Seagram eventually anyway.
To this day, Edgar Jr. and his father ardently defend the arrangement that in one swoop enabled Diller, an industry power when he ran Paramount and built the Fox TV network for Rupert Murdoch, to once again become a major Hollywood mover and shaker. Many others in the industry were much more skeptical, deciding that Diller had picked Junior's pockets and sent his pants to the cleaners. In any case, Messier effectively reversed the entire deal four years later, reacquiring all of Diller's entertainment assets in a deal valued at $10.5 billion. The actual cost was $3.2 billion in cash and stock (only the Bronfmans would take all stock) because Vivendi was throwing in the chunk of Diller's company that it inherited from Seagram and which was by then valued at more than $7 billion.
The two Edgars were shocked when Messier did the deal over Junior's vociferous opposition. Why fork out so many billions, when Diller had no choice but to eventually cede control of the company to Vivendi Universal under the terms of the original deal with Bronfman? Diller "made a lot of money for us," Edgar Sr. says. "I don't think he took advantage of us. He took advantage of Messier, but Messier was asking for it."
During Messier's binge, Edgar Jr. had also tried to talk him out of jumping into the sleepy book publishing business and urged him to steer clear of EchoStar. But the deal-making addict always ignored him, rarely consulted anyone else, and sometimes didn't even tell the board before leaping at the next too-good-to-pass-up bargain. He spent billions more on just about anything that peaked his interest, including big chunks of state telecom companies in Poland, Morocco, Spain and Hungary.
At the same time, he was using his new celebrity status to craft a flamboyant and hugely expensive lifestyle for himself, moving his family to a $17.5 million duplex penthouse, acquired with Vivendi Universal money, on Park Avenue, in the same upscale Manhattan neighborhood as the three Bronfmans. Unlike Messier, though, they used their own money to live like billionaires. The son of a middle-class accountant from Grenoble didn't have any personal money to speak of. He basked in the new spotlight, getting seats for himself and his wife, Antoinette, on Manhattan's most sought-after cultural boards, making appearances on talk shows, being profiled in Vanity Fair. Edgar Jr. and his glamorous Venezuelan-born wife, Clarissa Alcock, moved in some of the same social circles; but soft-spoken Edgar was like flat ginger ale beside the perpetually effervescent Messier. The Bronfmans were appalled by it all; but with only 5 of 19 board seats under their control (the board has since been downsized to 12, with the number of seats taken by the Bronfmans reduced to two) and no say in the running of the company, there wasn't much they could do about it -- until they finally persuaded the French directors that if Messier continued, the company wouldn't.
They had help, in the person of Claude Bebear, the boss of insurance giant AXA and the most influential of France's business leaders. Bebear took to assailing Messier's performance in public and working behind the scenes on his ouster. Bernard Arnault, the French luxury goods king and an old Messier ally, finally quit the board in disgust. Yet Messier still clung to power until Edgar Jr. made house calls on the holdout directors, to persuade them that he had no designs on the top job and that his family would be perfectly satisfied with a competent French CEO. That did the trick, and "the master of the universe" was quickly given his walking papers and told to vacate the luxury Manhattan digs by the end of December.
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