Dress Rehearsal, Or Opening Night?

By GEORGE J. CHURCH

It would make a great script for a movie or TV mini-series: company founder's teenage grandson rebels against going into family liquor business and vows instead to carve out his own career as a show-biz tycoon. But the movies and plays he produces, partly with his share of the family wealth, all bomb; he returns, chastened, to the place being held for him in the family firm. There he unexpectedly shows a fair executive talent and succeeds in keeping an already giant company growing, largely by diversifying beyond whiskeymaking. But he remains screenstruck, and as he approaches his 39th birthday next week, makes a second run at the glitter world -- this time by launching, in alliance with some of the top names in Hollywood, a titanic battle to take over the world's biggest media and entertainment company.

On Wall Street that scenario had a socko preview last week. Stock of Time Warner, the $14.5 billion movie, cable-TV, recording, telecommunications, magazine-publishing giant and employer of Madonna, Metallica, Batman and the staff of this publication, leaped 11% on Tuesday alone, to $40 a share. It closed the week at $39. Some of the recent buying came from Seagram, the beverage giant, which boosted its holdings to 14.9% of Time Warner's shares. But more came from traders reacting to a sudden storm of rumors that Seagram's president, Edgar Bronfman Jr., had finally decided to go for an outright takeover. Rumors endowed Bronfman with a long string of potential allies (several phone companies, the cable-TV firm Tele-Communications Inc. and such Hollywood powers as superagent Michael Ovitz and QVC chief Barry Diller) and even set a potential price: $55 for each of the 322 million Time Warner shares that Seagram does not already own. One story had Bronfman taking time at his wedding reception this year to huddle with Ovitz and Diller about takeover strategies.

Wait, though. Like the plot of many another entertainment extravaganza, this one might be wildly overhyped. Perhaps Seagram is doing no more than Bronfman blandly asserts: making a long-term, "passive" investment in a company whose future earnings promise a bigger return than Seagram's declining liquor business. One of Bronfman's oldest show-business friends, movie producer David Puttnam (Chariots of Fire), insists it is not even the entertainment side of Time Warner that most intrigues Bronfman but the prospect for future profits on the information superhighway. Says Puttnam: "The idea that he has stars in his eyes is just nonsense."

Or maybe Bronfman is aiming somewhere between a passive investment and an exorbitantly expensive takeover battle. Seagram might want to amass only enough stock to demand a voice in the company's varied businesses. Or maybe, deadening anticlimax though this thought might be, Bronfman has not made up his mind.

In any case, a turning point seems to be close for Bronfman and for Time Warner chairman Gerald Levin, who are widely reported to have been negotiating in person. Bronfman has to decide whether to buy enough additional Time Warner shares to push Seagram's holdings past the 15% mark. If he does, Levin must ponder whether to activate a device known as a "poison pill" designed specifically to prevent any "unfriendly" investor from acquiring more than 15%. Essentially, the company would issue enough new stock to knock a 15% holding down to about 5% or less. That, in effect, would force Bronfman's hand: Seagram could avoid having its ownership diluted only by making an all- cash offer to buy up every last Time Warner share outstanding. At a price of $55 a share, that would cost $18 billion -- for openers. By some calculations, other costs associated with a takeover, notably assumption of Time Warner's huge debt, would force Bronfman and allies to come up with $35 billion or more.

There are compromises possible too. One being talked up among security analysts: Seagram would buy up to 25% of Time Warner stock, but Bronfman would guarantee to freeze its holdings there for a long time and not try to unseat the present management. Levin in return would leave the poison pill in the corporate medicine cabinet and let Seagram place one or two members on Time Warner's 15-person board, giving Bronfman a strong voice but not control. At minimum, Levin will need to have at least some preliminary answers next Thursday for stockholders attending the annual meeting and asking what goes on.

Whatever his short-range tactics, Bronfman's eventual goal might well be more psychological than financial -- a search for success in some field more socially prestigious than the liquor business that began with grandfather Sam Bronfman. In 1919 Sam took over a hotel business upon the death of Yechiel Bronfman, who had brought the family to Canada 20-odd years earlier from Czarist Russia. Sam quickly took advantage of Prohibition in the neighboring U.S. He sold liquor to U.S. bootleggers and stockpiled much more whiskey; then, when Prohibition was repealed in 1933, he could slake American thirsts legally.

"Mr. Sam" wound up with the foundation of a family fortune that has since grown to around $4 billion, but troubled by a thought he was still voicing decades later: "How long do you think it'll be before they stop calling me a goddam bootlegger?" Seeking respectability and reacting against the strong anti-Semitism of the Canadian elite, he plunged into Jewish affairs, raising huge sums in the 1930s and '40s to help the Zionist founders of what became Israel. His son Edgar Sr., who became head of Seagram's U.S. operations in 1957 and of the whole company on Mr. Sam's death in 1971, has continued that tradition. Though he is still chairman of Seagram, Edgar Sr. devotes most of his time to the World Jewish Congress, which he has headed since 1980. Among other things, he is credited with prompting much of the investigation that unmasked the Nazi past of former United Nations Secretary-General Kurt Waldheim. In the U.S. he has been an important Democratic Party supporter; he was an early backer of Jimmy Carter as the Georgian began his 1976 presidential run.

At Seagram, Edgar Sr. accommodated changing consumer tastes in part by lightening blends of a leading whiskey brand, introducing bottled cocktails and importing wines and liqueurs. He also diversified into office buildings, shopping malls and other businesses. In 1981 Seagram bid for control of Conoco, a giant oil and gas producer. It lost to Du Pont Co. but came out owning 24.3% of Du Pont stock, today worth around $9 billion. Seagram's management of that investment just might indicate what role it could play in Time Warner. The company has made no effort to take over Du Pont, but it sought and got proportional representation on the Du Pont board. Seagram counts as part of its own profits not just dividends from Du Pont but a proportionate share -- that is, 24% -- of Du Pont's undistributed earnings. Corporate accounting rules permit a company to do that if it owns 20% or more of another firm -- and that is why some stock analysts think Seagram may well boost its share in Time Warner past that threshold.

Edgar Sr. blazed a path for his son in another way: investing in show business. He tried gaining control of Paramount but lost, then bought a big block of MGM and actually became chairman in 1969, only to resign after Kirk Kerkorian took over the company. Bronfman continued, however, to back Broadway shows (one was 1776) and motion pictures. In 1970 Edgar Jr., then 14, found a script on a table of the family's New York City apartment and talked his father into bankrolling Melody, a movie based on that script. He skipped summer camp and went to London to make tea and run errands for the filmmakers. Puttnam, the producer, remembers him wearing the same tie-dyed shirt and jeans every day. "He was very bright, incredibly tenacious and learned very fast -- a very decent kid who has never been short with his opinions. He was absolutely determined to do things on his own." Edgar Jr., who acquired the nickname "Efer" -- he even named a company Efer Productions -- came back to New York long enough to graduate from the Collegiate School, a tony preparatory institution, but rather than going on to college, he decided to become a producer on his own. "I've fallen in love with producing and plan to make it my life's work," he announced while still a senior at Collegiate. During the 1970s and early '80s, he produced movies (The Blockhouse, The Border) and plays (Ladies of the Alamo). Some shows featured such stars as Peter Sellers and Jack Nicholson, but none achieved much critical or financial success. Bronfman was a bit luckier in a fling at songwriting. Dionne Warwick recorded a love song he wrote, Whisper in the Dark. Efer "eloped" (his word) with Sherry Brewer, a black model-actress and close friend of Warwick. They had three children before divorcing in 1991; early this year, Bronfman took a second wife, the daughter of a Venezuelan oil executive.

In 1978 the young producer told an interviewer for Women's Wear Daily that "right now I have no interest in getting into the Seagram business." Four years later, though, he did just that. In 1986, Edgar Sr. proclaimed Efer his heir as head of the company. He was chosen over his older brother Samuel, who in 1975 was the center of a sensational kidnapping case; one of the two captors claimed Samuel had arranged the abduction himself to extort ransom money from his father. The family believed Samuel's angry denials.

Edgar Jr. assumed the mantle as something of a ruler by divine right. Industry sources say he runs the company by fiat, not consensus. Says an observer: "It's the old school of 'I lay down the law, and you obey it.' " Generally, his performance is rated as mixed. Says commentator Paul Gillette, publisher of the trade paper the Wine Investor: "He's made some moves that work, and others that make you go hmmm . . ."

In fairness to Bronfman, he has had to battle a seemingly irreversible decline in Seagram's core business: because of health worries and life-style changes, per capita consumption of liquor in the U.S. has been declining for years, and even within the liquor category, tastes have been shifting from Seagram's old specialty, "brown goods" (Scotch, bourbon, blends) to "white goods" (gin, rum, vodka). Bronfman has tried to cope partly by shedding lower-priced brands to concentrate on higher-prestige liquors. Among other things, he has acquired Martell cognac from a French company and worldwide distribution rights to Absolut vodka from a Swedish government-controlled firm. That has helped a second strategy, expanding overseas operations; cognac generally and Martell specifically are particularly popular in the fast- growing East Asian market. Also, Bronfman has moved into nonalcoholic beverages, notably by buying the Tropicana line of fruit juices. That has increased revenues and profits, but at the high price of $1.2 billion. Overall, Seagram's profits have expanded an unimpressive 10% in the past five years, to $650 million in the fiscal year ended Jan. 31, on sales of roughly $6 billion. The record looks better considering only earnings from Seagram's own operations, which grew 77% while profits from its Du Pont investment receded. Du Pont supplied 82% of Seagram's total profit in 1989, but only 21% in the most recent fiscal year.

Still, analysts generally agree that the company will earn more by investing in something -- almost anything -- other than liquor. Even so, few people, including some of Bronfman's rumored allies, believe he wants to get into a takeover battle: raising the monstrous sums needed would be a strain on the wealth of even his family and any foreseeable teammates. On the other hand, singer Warwick, who remains a friend, says she has talked with Edgar Jr. about the "music end" of Time Warner's business and adds, "He really wants it -- I know." After all these years, Bronfman has finally produced a hit, titillating Wall Street, if not yet Hollywood, with a first-rate mystery- suspense show.

With reporting by Bernard Baumohl/New York and Jeffrey Ressner/ Los Angeles