The Seagram Company (Canada)

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Most of the spirits and wine brands previously owned by Seagram are now divided between Diageo and Pernod-Ricard. Seagram underwent several major transformations between 1995 and 2000 before its final break-up. This traditional drinks business reinvented itself as a global entertainment giant in the 1990s, acquiring first Universal Studios and then Europe's leading music group Polygram. But costs and losses spiralled and the group's share price plummeted. After months spent wooing every one of the world's leading media groups, Seagram finally sold out to the Gallic charm of France's Vivendi in a $34bn deal which was then one of the biggest ever transatlantic buy-outs. The group's heritage liquor business was sold off, while the entertainment assets of Seagram and Vivendi were merged as Vivendi Universal. But booze is where it all began...

The Bronfman family were Russian Jewish immigrants who had arrived in Canada in the early 1890s. The family was involved in a number of different trades including timber and horse dealing, and eventually hotel management. Brothers Samuel and Harry Bronfman took control of the family business in the early 1900s, but it wasn't until the mid-1910s that they became involved in the industry which ultimately made them one of the world's richest families. At different points between 1915 and 1919, the various provinces of Canada passed Prohibition laws preventing the sale of liquor in shops. Seizing the opportunity this provided, Sam Bronfman bought a closed-down liquor store in Montreal, Quebec to exploit a loophole in the law which allowed distillers to sell alcohol outside their own province. His supplies were either distilled locally or imported from Great Britain.

Quebec repealed Prohibition in 1920, but a year earlier the neighbouring United States had adopted its own blanket Prohibition across the whole country. Bronfman quickly set up Distillers Corporation to manufacture as well as sell whisky and made huge profits shipping his liquor south of the border. It has been estimated that as much as half of all the alcohol shipped out of Canada during US Prohibition originated with Bronfman. He also agreed a partnership with the British conglomerate Distillers Company to distribute their brands, including Haig and Dewar's, legally in Canada. In 1928, Bronfman added a greater layer of respectability to what was effectively a bootlegging business by acquiring Joseph Seagram & Co, a highly respectable Canadian distillery, originally founded in 1857, whose brands included Seagram's 83 and VO. Once Prohibition was repealed in 1933, Distillers Corporation-Seagram's set up Joseph E Seagram & Sons in the US as well.

Eager to dispel the rather shady image whisky had gained during Prohibition, Bronfman set about positioning the spirit as a respectable drink. In particular, the company emphasised the ageing and blending processes involved in its products, and introduced different premium pricing for its older blends, such as 7 Crown American Whisky. The group also sold its whisky to wholesalers bottled, unlike most other distillers who sold it in barrels. This ensured it could not be watered down, and the habit was gradually adopted by all Seagram's competitors. Adding to the product's prestige, Crown Royal was introduced in 1939 to celebrate the visit to Canada of the British King George VI and Queen Elizabeth.

In the 1940s and 1950s, further key brands were added to the portfolio, and the company diversified into other spirits with the launch of Captain Morgan's Rum (1944), and the acquisition of North American rights to Chivas Regal (1949), and Mumm and Perrier-Jouet champagne (1952). For most of two decades the company virtually dominated the US spirits business, and especially the whisky segment. Under Sam's son Edgar the group diversified during the 1960s, acquiring various oil and gas properties including Texas Pacific. The group also changed its name, dropping the Distillers tag to become The Seagram Company. However the family also regularly featured in the newspapers, not least during the 1970s when Edgar's eldest son Samuel II was allegedly kidnapped and held for ransom. He was released unharmed but during a subsequent trial, his supposed kidnapper made sensational allegations that he was Samuel II's lover and that the kidnapping had been plotted with Samuel's complicity in order to extort money from the family. Those accusations were strenuously denied by Samuel II, but the perpetrator was eventually found guilty of extortion but not kidnapping.

Meanwhile the company continued to expand its portfolio, acquiring Glenlivet malt (1978), Sandeman ports and brandy (1980), UK liquor store chain Oddbins (1984), Sterling Vineyards (1984) and above all Martell cognac, acquired for $1.2bn in 1988. Also that year, Seagram snapped up Tropicana Products, the world's leading manufacturer of fruit juice. In another clever piece of investment brokering the company sold its shares in Texas Pacific in 1980 and swapped them for a near-25% stake in chemical company Du Pont.

In 1995, Edgar Bronfman selected his younger son Edgar Jr as his successor. However, Edgar Jr was more interested in the entertainment industry than in drinks. During the late 1970s he had tried his hand in Hollywood, producing a few movies (the best known of which was The Border, with Jack Nicholson) and dabbling in the music business as a songwriter and producer. When neither career really took off he joined his father at Seagram in 1982, working his way up through the ranks. But his interest in show business remained, and in 1993 he persuaded his father to acquire a 15% stake in media giant Time Warner, with a view to building a takeover bid.

In 1995, Edgar Jr replaced his father as CEO of Seagram, and one of his first moves was to sell the majority of the Du Pont shares (which he was said to have described as "a boring investment"), making a spectacular profit of almost $8bn. With Time Warner beyond his reach, Bronfman used part of the proceeds from the Du Pont sale to buy Japanese company Matsushita's 80% stake in movie and music group MCA for $5.7bn. Overnight, Seagram was transformed into one of North America's highest-profile entertainment groups with a huge range of assets including film studio Universal Pictures, MCA Records and the Universal Studios theme parks.

Bronfman proved popular with Universal's executive team, who were impressed by his hard work and his commitment to the entertainment business. But investors grumbled. The combined group's own shares underperformed rivals, while the Du Pont stock sold by Bronfman soared, almost doubling over the next two years. Meanwhile, Bronfman continued to build his profile in the entertainment industry. In 1997, Seagram cashed in half of its Time Warner stake and used the proceeds to take full control of cable business USA Networks, previously a joint venture with Viacom. A year later it merged that business with Barry Diller's fast-expanding HSN media empire, receiving shares and cash worth more than $4bn. It was a big year for deals. Others included the purchase of a stake in Spanish theme park Port Avventura (from Pearson), ownership of US park Wet'n'Wild, and control of Korea's leading whisky marketer Doosan. But the key transaction was the mammoth acquisition of European music and movies group Polygram for $10.2bn, then the third biggest deal in entertainment history. (Seagram had previously been discussing the acquisition of EMI, but ditched the British company at the altar in favour of the Dutch business). Polygram's movie business was closed down and its huge music division was merged with Universal to form what is now Universal Music Group. To raise funding for the acquisition, Seagram sold off Tropicana to PepsiCo for $3.3bn.

But 1998 was to prove the highpoint in the Seagram rollercoaster, and the following two years were marked by increasing pressure on the group's various divisions. Universal Music began to feel the pinch from a global recession in the record industry, while the movie division followed the enormous success of its Jurassic Park and Lost World movies with a string of expensive failures. The cost of swallowing Polygram left a huge dent in Seagram's financial performance in the year ending 1999. Despite a 20% jump in profits from spirits and wine, poor performance from the entertainment divisions and restructuring costs left the group nursing a $383m loss.

Edgar Bronfman now faced mounting criticism not just from shareholders but also from his own board, led by Edgar Sr and uncle Charles. As the group's share price fell and there was no sign of an improvement of performance in the entertainment divisions, Bronfman began to look for suitors for parts of the business. Talks of a merger with Allied Domecq fizzled out in 1999, and by early 2000 Seagram was reported to be seeking a buyer for its Universal Studios film and theme parks divisions. Numerous companies were involved in talks, including News Corp, Bertelsmann and Vivendi. Most were frightened off by the high price demanded by Bronfman as well as his demands for management control.

As other entertainment groups gradually backed away from negotiations, Vivendi became the favoured bidder. Reportedly against the wishes of his uncle Charles, Edgar Bronfman agreed to sell Seagram to the fast-growing French group for $34.7bn in Vivendi stock. The Bronfman family ended up with around 8% of the merged group, the value of which had plunged to just under $7bn upon completion, as well as five seats on the 18-strong board of directors. But despite high hopes all round, the French company was to prove a poor choice of partner. Seagram's entertainment assets were merged into Vivendi, and the drinks business was put up for sale.

Almost immediately, the sell-off of the drinks business degenerated into a messy free-for-all. One major problem quickly became apparent: several of Seagram's most-prized assets were actually licensed from smaller producers who held a say over who took over distribution of their products. Absolut vodka's owners, for example, withdrew the brand, and assigned it to a new distribution arrangement with Jim Beam bourbon, while Puerto Rican distillery Destileria Serralles claimed first rights over Captain Morgan rum and agreed a separate deal with Allied Domecq. Eventually, Vivendi accepted a joint $8.2bn bid from Diageo and Pernod-Ricard, and the deal was finally completed at the end of 2001. A few brands were sold off to other buyers: Oddbins was acquired by Groupe Castel, Four Roses Bourbon by Kirin, Sandeman Port & Sherry by Sogrape (although Pernod-Ricard retained distribution rights); and Seagram's Mixers by Coca-Cola.

Last full revision 6th October 2017


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