Cigar Aficionado

"Marvin, because of the AOL Time Warner merger, the landscape has changed forever. Consolidation in the media world is forcing a different approach to growth," Edgar Bronfman Jr. said at lunch at the Four Seasons Restaurant in New York City the day before the Vivendi-Seagram deal was announced.

This response was given to me after I had asked him about the rumors circulating in the media for months that Seagram was close to a deal with Vivendi. When I picked up The New York Times the next day, June 20, 2000, I was stunned. I could not believe the sale was happening. I did not want it to happen.

Selfishly, I had seen this as a bad development for the American wine and spirits industry, an industry I have been reporting on in my trade newsletter (Impact) and magazine (Market Watch) for more than a quarter of a century. Seagram and the Bronfman family had been the anchor for this American-based industry, as one by one, domestic spirits and wine companies had been acquired by foreign corporate giants.

Hindsight is everything. Since then, of course, the world has turned upside down. In particular, the AOL Time Warner deal, the merger that drove Edgar Jr. to the wall, has turned sour. And, in the meantime, many other Internet and new-media corporate balloons have burst.

In retrospect, one can ask: how do you trade away a $34 billion business for stock? (The stock price was $77.35 when the merger was announced; it closed at $15.45 on Feb. 11.) What motivated Edgar Jr. to have blind faith in the Vivendi CEO, Jean-Marie Messier, who turned out to have blind ambition and not much else? What caused him to make the decision that undermined the vast wealth of a family, wealth that had been amassed over three generations?

In this issue, Canadian writer Brian Milner, a seasoned business reporter and observer of the Bronfmans, weaves a heart-wrenching tale of how Edgar Jr., with his father's blessing, put much of their family's eggs in a basket led by a man seemingly out of control.

As I write this letter, Steve Case has just announced that he is stepping down as chairman of AOL Time Warner. There is great speculation as to the media giant's new leadership. Given the strong position of AOL Time Warner's various business units, it seems apparent that the company will be able to rebuild its portfolio of businesses and stock price over the next several years. Vivendi is in the middle of a similar business redevelopment. Both companies are saddled with huge amounts of debt that need to be paid down. What role Edgar Jr. will play in Vivendi's future is questionable as Messier's replacement, Jean-Rene Fourtou, appears to be making a number of key decisions regarding the sale of businesses that Messier bought at highly inflated prices over the past several years.

The bottom line is that no matter the outcome of Vivendi's future, the reputation of the Bronfman family and, in particular, Edgar Jr. will forever be scarred by this episode.

For me, the sadness I feel has more to do with the effect on the American wine and spirits industry and the many Seagram people who lost their jobs and retirement savings. The Bronfman family could have sold the Seagram wine and spirits business, intact, to Seagram employees and a corporate investor group, but chose instead to break it up and sell it to two foreign spirits giants, Diageo and Pernod Ricard. I will never understand this decision. The Bronfman family literally walked away from the liquor industry, an industry that had treated them well for three generations -- all to pursue the glamour of Hollywood. Also, shame on the investment bankers who advised the Bronfmans, and then gallantly took their big fees.

I bet if Edgar Junior and Senior could rewind their lives and the Vivendi merger, they would do it in a heartbeat. The grass is not always greener on the other side.