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Q&A with Edgar Bronfman Jr.

by Richard Morgan | Published January 23, 2012 at 1:08 PM

Edgar Bronfman Jr. has done more deals than most investment bankers. After helping acquire Tropicana Products Inc. in 1988 and a sizable chunk of Time Warner Inc. in the early '90s, the heir to Seagram Co. Ltd. hit his dealmaking stride on purchasing 80% of MCA Inc. for $5.7 billion in 1995. A year later, with Time Warner taking political heat for its 50% position in hip-hop label Interscope Records, Bronfman watched the stake return to Interscope's founders and then, for $200 million, snatched it for MCA Music Entertainment.

Seagram's success with Interscope, coupled with MCA's weak overseas presence, emboldened Bronfman to pursue Dutch entertainment conglomerate Polygram NV when its majority owner, Philips Electronics NV, decided to sell its 75% interest in 1998. He succeeded after arduous negotiations, paying $10.4 billion in a transaction that not only doubled Seagram's showbiz bet but left Bronfman in charge of a global media conglomerate with a renamed musical entity -- suddenly the world's largest -- Universal Music Group.

Another transforming transaction occurred in 2000 by way of a three-way tie-up featuring Seagram and French companies Canal Plus SA and Vivendi SA. Although Bronfman obtained an excellent price for Seagram's contribution to the all-stock merger, called Vivendi Universal SA, the sale proved a disaster. The Bronfmans, who had converted their 24% controlling interest in Seagram into a 7.1% stake in Vivendi, watched with revulsion as their $5.8 billion investment dipped below $1 billion inside of two years. The family fortune would fully recover, but that didn't keep Bronfman, as vice chairman of Vivendi's board, from working overtime to end the free-spending reign of chairman and CEO Jean-Marie Messier.

The Seagram scion successfully ousted Messier in July 2002, only to learn four months later that the Hollywood assets he had sold to the French were again in play. The opening salvo arrived in the form of an unsolicited $15 billion bid from former 20th Century Fox head Marvin Davis. Then, after playing coy for months, new Vivendi management agreed to shop the assets, minus music, as Vivendi Universal Entertainment. For Bronfman, winning VUE back wasn't a mission so much as an obsession. He stepped aside as Vivendi's vice chairman in May 2003, preparatory to mounting a bid of his own with strategic backer Cablevision Systems Corp. and financial sponsors Blackstone Group LP and Thomas H. Lee Partners LP.

Vivendi eventually got around to identifying Bronfman's team and General Electric Co.'s NBC unit as auction finalists. But in September 2003, when Vivendi announced its decision to merge VUE into NBC, some thought it a career-ender for Bronfman. The seller, after all, had not only snubbed its former vice chairman but chosen an offer many believed inferior to a sweetened bid from Bronfman. However, when one door closes, another one opens. Or, as The Deal magazine's Richard Morgan learned from Bronfman in his first interview since the sale of Warner Music Group Corp., he was already knocking on two doors at the same time.

The Deal magazine: How difficult was it to turn around after a protracted auction for Vivendi Universal Entertainment and immediately join the contest for Time Warner's music division? Were you close to sitting it out? Or did you perceive its potential as greater than VUE's?

Edgar Bronfman Jr.: It wasn't one versus the other. I actually approached [Time Warner chief executive] Dick Parsons about the opportunity to purchase WMG before I entered the VUE bidding. Dick decided to sell WMG's manufacturing unit first, however, before commencing the sale of the recorded music and publishing assets. So after Time Warner sold the manufacturing business and began discussions with EMI to consummate a merger, we entered the bidding for WMG.

Any thoughts as to why Haim Saban and Quadrangle Group LLC exited your WMG investor group?

I'm not sure I know the full answer to that. Obviously, they're both talented investors with long track records. Quadrangle was invited, but my recollection was that they didn't have the time. I'm not sure why Haim decided to pull out, but he's been a great gentleman ever since and has always told me he made a big mistake in doing so.

As for those who remained -- you, Thomas H. Lee Partners, Bain Capital LLC and Providence Equity Partners LLC--was the working relationship always smooth?

All the shareholders were extremely constructive and very supportive, and I enjoyed working with each of them. I think the fact that we worked on this together for as long as we did, and with the results we achieved, says a lot about our relationship. It was a true team effort. And that includes the outstanding men and women of Warner Music Group and Warner/Chappell and our labels, who are the best team we could have imagined.

When did your private equity partners start to get antsy about an exit, as, inevitably, they always do?

You know what? Over more than seven years, they were never antsy about an exit, especially because we all saw so much future potential for WMG. But when it became clear that EMI would be available in 2011, our board had to make a decision about what would maximize value for shareholders: to maintain the status quo, to become a bidder for EMI -- which, might or might not be successful, and even if successful, would have taken several years to realize -- or to put the company up for sale prior to EMI being available, and we chose to initiate the sale process.

That created a terrific opportunity for [current Warner Music Group owner, former WMG director and Access Industries Inc. founder] Len Blavatnik, who knew the company well, having served as an investor and board member himself, and who correctly perceives a robust future for content in general, and music specifically.

Any nightmares about trying to hammer out deal terms with EMI? So many proposals without marriage. What kept this so-called fated couple from ever meeting its fate?

I wasn't at WMG for the original attempt in 2000. For my first go, in 2006, the fact that the European Court of First Instance required the EC to re-review the Sony-BMG merger that they had approved two years earlier, made it difficult for Warner and EMI to continue the discussions that they were having. And for the 2007 auction, we weren't willing to pay as much as Terra Firma was.

As far as the recent EMI sale process is concerned, our board had a price beyond which they didn't feel it was prudent to reach, and they said as much to Citi during the process. WMG has a great future ahead of it, and it has lots of potential paths to success.

In July 2011, you sold WMG for more than your group paid for it. How was that possible in light of what the music industry had been through?

I think we all feel a great sense of accomplishment in delivering a 35% IRR to our shareholders over a seven-year period, and that can only come about through the extraordinary efforts of a fantastic management team and thousands of people across the company who deserve credit for that result.

Would you consider returning to the music business in some way?

I love the music business. Even with all the challenges we face as an industry, I still think there's a bright future. For now, I'll view that future from the perch of a director of Warner Music Group.

We know you admire Steve Ross as an entertainment executive, but who's your favorite dealmaker in the same so-called space? Who, if anyone, has more experience than you?

I certainly don't want to compare myself to others. I'm proud of my track record of media investing in the U.S., from Time Warner to Universal to Warner Music. But I can say that one person who has been a constant mentor, supporter and inspiration for me throughout my career has been [IAC/InterActiveCorp chairman] Barry Diller.

What's next? Can't say? OK, will it be entertainment-related, or are you taking an entirely new direction?

Let me quote one of my favorite Warner/Chappell songwriters, Stephen Sondheim: "Something's coming, I don't know what it is, but it is gonna be great!"

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