Spiriting Away a Fortune

Eve

r since he was a teenager, more interested in producing movies than in the prospect of running his family's liquor empire, Edgar Bronfman Jr. has faced his share of skeptics. One of the first, in fact, was his grandfather Samuel, a Russian immigrant to Canada who advanced from Prohibition bootlegger to spirits magnate, owner of a portfolio that included Chivas Regal Scotch and Captain Morgan rum. In a mid-1990s documentary about the family, Edgar Jr. recalled his grandfather saying, "Shirtsleeves to shirtsleeves in three generations. I'm worried about the third generation." Such doubts didn't seem to faze Edgar Jr., who years ago declared, "I'm not going down in history as the one Bronfman who pissed away the family fortune."

Well, not the whole thing, at least. Since Bronfman took the helm from his father Edgar Sr. in 1994 and uncorked a new, media-centric strategy, the family's holdings in Seagram, and now Vivendi, have lost 75% of their value and are currently around $1 billion. Seeking high-growth businesses, Bronfman ultimately jettisoned the famous spirits business, an unpopular move with part of the family. "From the beginning of this escapade, [Bronfman's uncle] Charles has been dead set against [it]," says a Bronfman-family insider. And to finance his $5.7 billion purchase of movie studio MCA/ Universal in 1995, he sold Seagram's nearly 25% stake in chemical giant DuPont for $8.7 billion. Today the stake would be worth almost twice as much.

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A published writer of cheesy love songs, Bronfman made a big bet on the music business in 1998, shelling out $10.4 billion to buy Polygram. Unfortunately, with digital piracy starting to take a chunk out of CD sales, his timing isn't looking great. "I wouldn't leave him with a kindergarten class. I think he has shown a lack of ability to manage anything," says Michael Palmer, president of Toronto-based Veritas Investment Research.

There was no shortage of irony as Bronfman helped wrest Vivendi away from chief executive Jean-Marie Messier. After all, like Messier, Bronfman always came across as a bit of a dilettante and star-struck CEO. At Universal he once sent a memo to studio executives saying he expected to have double-digit earnings growth every quarter, a virtual impossibility in such a hit-driven industry.

But Bronfman did understand certain things. At Seagram he got rid of second-tier brands and inked a lucrative distribution deal with Absolut vodka. More important, he recognized that Seagram's reliance on the slowing liquor business wasn't healthy. He made some shrewd deals, generating a profit of almost 50% on his family's $2.2 billion investment in Time Warner and getting Vivendi to pay a 50% premium for Seagram's shares (alas, he took it in Vivendi stock). And he wisely sold millions of those Vivendi shares, taking about $1 billion off the table.

Still, Bronfman's bottom-line record is such that even if he wanted to take back control of Vivendi's American entertainment assets, as some have speculated, major shareholders would probably oppose it. Edgar has other things to keep him busy, anyway. He has taken a 40% stake in British jeweler Asprey & Garrard, hoping to expand the luxury-goods brand to shoes and other fashion accessories. His family members must surely hope they will still be able to afford to dress that way.