For Sale By Owner?

Tall, lean and confident, Seagram CEO Edgar Bronfman Jr. bounds onto a ballroom stage at the Sheraton Hotel in New York last week. Although he has a cold, he's there to deliver a speech on the prospects of the music business in the wired world. He begins on a contrite note. Regrettably, his cold-wracked voice is weakened, the ever-polite Bronfman apologizes. And because he's terribly busy actually running Seagram, he deadpans, "I'm unable to announce today our much-rumored business combination with News Corp., AT&T, Canal Plus, Viacom, Disney, Bertelsmann, Yahoo!, Vivendi, USA Networks, NBC, Sony, Microsoft or any Paul Allen-affiliated company."

The audience gets the joke, yet the fate of Seagram is no laughing matter these days for the 44-year-old Bronfman. For weeks he's tried to puncture the rampant speculation that he is peddling Seagram's Universal music, movie and theme-park empire to a Who's Who of new and old media. Bronfman insists he'll be running Seagram "for a long time" and recently dismissed the conjecture about his selling out as "inaccurate." Last Wednesday he denied it again in Palm Springs, Calif., at an annual retreat for Universal Studio executives, who promptly applauded. But his serial denials are falling on deaf ears. Seagram's stock price is soaring lately as investors bet that the deal rumors are true. Last Friday shares climbed 37/16 to close at 631/2, near a record high.

There's a good reason Seagram has been unable to stamp out the speculation. Bronfman is indeed actively shopping the entire company, according to top media executives and investment bankers. "They are talking to everyone," says a top media dealmaker. Worried about being trampled as a nonwired weakling in the post-AOL-Time Warner world, Seagram has recently held talks with News Corp., Disney, Vivendi, a French conglomerate and Bertelsmann, the German media giant, according to Newsweek sources. (Seagram and Bronfman declined to comment on the merger talk and its potential partners declined to officially comment, or could not be reached.) In at least one case, the Seagram talks have been held at a very high level. Some of the contacts with News Corp., while described as "informal," involved chairman Rupert Murdoch; his No. 2, Peter Chernin, and David DeVoe, his financial chief, Newsweek has learned.

NEWSWEEK has also learned the laundry list of terms that Bronfman purportedly is pushing for. Although obsessed with building his company into a bigger player, Bronfman is said to want to remain in firm control of the Seagram properties. (This stipulation may explain why Bronfman has been able to say publicly he plans to run the entertainment assets for "a long time.") The Bronfman family also wants to be paid in stock, not cash, to avoid a hefty tax bill. Finally, Seagram is demanding a hefty premium to the company's current $24 billion valuation.

Bronfman is unusually isolated as he attempts to sort through the most-complicated issue in the business world today, the convergence of media and technology. Although he relies heavily on his father, Edgar M. Bronfman, the company's chairman, Bronfman is navigating without the benefit of trusted confidants Barry Diller and David Geffen, who have counseled him for many years. There is tension between Bronfman and his onetime mentor, Diller. And Bronfman has not spoken to Geffen in months for reasons that aren't clear. Diller and Geffen didn't comment.

Bronfman would seem to have powerful reasons to be pursing a deal at this juncture. Like every media mogul, he awoke on Jan. 10 to find himself suddenly facing a business world that was unnervingly altered by the AOL-Time Warner merger. "The AOL-Time Warner deal has made a number of companies recognize the importance of combining content with Internet distribution," says Strauss Zelnick, chief of Bertelsmann's music group, one of the companies Seagram has purportedly approached. Zelnick refused to comment on any possible talks with Seagram. Then, just days later, Bronfman's world was further rocked by the merger of Warner Music Group and EMI. The deals, especially the one involving AOL, made Seagram, already one of the smallest of the major entertainment companies, seem dwarfed by comparison and left out of the online revolution without a giant wired partner. Music, Seagram's biggest business, is being transformed by the Net far faster than film or TV, and its goal is to play a leading role.

Finally, things are looking up for Seagram, which, according to industry execs, makes it a good time to do a deal that would lock in the increased values and validate Bronfman's move into entertainment. Indeed, after seemingly endless reorganizations, most of Seagram is humming. Its recent second-quarter earnings topped expectations at $557 million compared with a year-earlier loss of $226 million. The Universal Music Group had what the company called "the strongest quarter ever" in music industry history. Losses narrowed at the Universal studio, while the theme parks and spirits business showed strong gains.

A sweetly priced deal would allow Bronfman to save face and vindicate his diversification strategies. For most of his career, Bronfman, who is married to a striking Latin American aristocrat, has endured withering criticism and was generally dismissed as a rich-kid dilettante. Eschewing the family spirits business in his youth to try his hand at movie producing and songwriting, the rebellious Bronfman finally joined Seagram in 1982. In 1993, he spearheaded a $2 billion Seagram investment in Time Warner, gaining a cold shoulder from management. One year later his father anointed him Seagram CEO at age 39. The next year Bronfman began reshaping the family Montreal-based empire (they started four generations ago as bootleggers) by shelling out $5.7 billion for MCA, since renamed Universal. To finance the deal, Bronfman cashed in Seagram's highly valuable stake in Du Pont--a decision that would haunt him and Seagram shareholders when the chemical company's shares began to rise by tens of billions of dollars. (Du Pont shares have since slumped and some of Bronfman's subsequent entertainment deals have worked extremely well for the company.)

One widely circulating theory has Edgar Jr. being pressed by his family to dispose of Seagram. It partly stems from the very public chilliness of his uncle, Charles Bronfman, toward the company's inital move into showbiz. Yet Seagram advisers and executives insist Charles, whose son Stephen joined Seagram's board last year, now fully backs his nephew. And he meets periodically with the company's senior entertainment execs. At the end of Seagram's annual meeting last November, Charles made a very public show of reconciling with Edgar Jr., congratulating the younger Bronfman for his "courageous and professional" corporate leadership. "You're doing a hell of a job!" Charles declared, shaking his hand.

Relations aren't so cozy with another board member, Barry Diller. Indeed, according to a close Diller ally, few people would be as thrilled as the media mogul for Bronfman to sell Seagram. When Bronfman acquired Universal, he landed a medium-size television-production business, which, in a complex deal, he turned over to USA Networks, a company controlled by Diller. In 1997, in exchange for Universal's TV business, Diller gave Seagram, among other things, 45% of USA, plus cash and veto power over any big deals. The deal went smoothly at first. However, when Bronfman vetoed a tenative combination between USA and NBC, a deal that Diller badly wanted, things became tense, with Diller feeling constrained. Diller declined to comment. But for Bronfman, the values of the USA shares alone are now worth more than Seagram's entire original purchase price for Universal. In any deal for Seagram, the USA shares would be a juicy prize.

But having opened the door for a possible sale, it could be ugly if Seagram has to leave the party alone. For one, the stock would likely plunge as investors looking for a merger pop would bail out. And strategically, the wired world may be a very cold and lonely place even for a major, but unaffiliated, music company. Given the Bronfmans' stiff demands, it's quite possible that he will be unable to come to terms with any suitor. And the biggest problem, aside for the rich price he purportedly wants, seems to be finding a buyer willing to keep Bronfman on as a top player inside a larger, merged company. In Seagram's courtship dance, it may turn out that the biggest obstacle is Bronfman himself.