The Seagram Company Ltd. History

Company Perspectives:

The Seagram Company Ltd.'s purpose is to create long-term growth for our shareholders, by serving our communities and constituencies with integrity; by recruiting, guiding and developing the highest quality people with the highest standards; and by making and marketing competitively superior products to consumers throughout the world.

Company History:

The Seagram Company Ltd., which is 32-percent owned by the Bronfman family, is a major international liquor giant (trailing only Diageo PLC), selling such brands as Seagram's, Chivas Regal, Crown Royal, Martell, Absolut, Captain Morgan, and Mumm in more than 150 countries. The company has also quickly gained significant holdings in the world of entertainment, most notably the mid-1990s purchase of an 84-percent interest in MCA Inc., which was renamed Universal Studios, Inc. (films, television programs, theme parks, music labels), and the 1998-announced acquisition of PolyGram, the world's number one music company (the music labels of Universal and PolyGram would be combined as the Universal Music Group). The addition of PolyGram and the proposed sale of the Tropicana Products juice business to PepsiCo would mean that Seagram would derive more of its revenue from entertainment than from distilling. The Bronfman family operates one of the largest family-controlled capital pools in the non-Arab world.

Early History

In 1889 the Bronfman family fled Czarist anti-Semitic pogroms in Bessarabia to make their home in Canada. A wealthy family, they were accompanied by their rabbi and two servants. In the century since, the Bronfmans (whose name, ironically, means "liquor man" in Yiddish) experienced a brief period of poverty but then went on to build one of the world's largest distilling businesses.

Soon after the family's arrival in Canada, patriarch Yechiel Bronfman learned that tobacco farming, which had made him a wealthy man in his homeland, was incompatible with the cold Canadian climate. The Bronfmans found themselves without a livelihood, and Yechiel was forced to leave his family to work as a laborer clearing the right-of-way for a line of the Canadian Northern Railway. He bought a shed for $12 for his family and after a short time moved to a better job in a sawmill. Yechiel Bronfman and his sons then started selling firewood, making a fairly good living, and began a trade in frozen whitefish to earn a winter income. Eventually they turned to trading horses, a venture through which they became involved in the hotel and bar business. On reaching adulthood, two of Yechiel Bronfman's sons, Harry and Sam, took charge of the family's business interests. Harry Bronfman owned his first hotel in 1903 when he was 17 years old.

When Prohibition came to Canada in 1916, the Bronfmans decided to leave the hotel business and enter the whiskey trade. Canada had implemented Prohibition only to appease foes of drinking; in reality, alcohol consumption remained high in Canada. The Bronfmans took advantage of the imprecise Canadian Prohibition laws to maximize their bootlegging profits. Sam Bronfman bought the Bonaventure Liquor Store Company, conveniently located near the downtown railway in Montreal, in 1916. People traveling to the "dry" west could stock up on liquor before boarding the train. Business was brisk until March 1918, when a law was passed that prohibited the manufacture or importation of alcohol containing more than 2.5 percent spirits.

The prohibition excluded alcohol intended for medicinal purposes, so Harry Bronfman promptly went into the drug business. He bought a Dewar's whiskey sales contract from the Hudson's Bay Company and began selling straight liquor through drugstores and to processors who made "medicinal" mixtures. One such concoction was known as a Dandy Bracer--Liver and Kidney Cure; it contained sugar, molasses, bluestone, 36 percent alcohol, and tobacco.

When the Volstead Act instituted Prohibition in the United States in 1919, the Bronfmans imported 300,000 gallons of alcohol from the United States, enough to make 800,000 gallons of whiskey. They reduced 65-overproof white alcohol to the required bottling strength by mixing it with water, some real whiskey and a bit of burnt sugar to provide color. A shot of sulfuric acid brought on a quick simulated aging process. The Bronfmans' mixing equipment could fill and label 1,000 bottles an hour. All the whiskey came out of the same vats, but it was bottled under several different labels to raise the liquor's value. Materials cost of the whiskey mixture was no more than $5.25 per gallon. Bottled, the whiskey sold for the equivalent of $25 a gallon.

Incorporating and Going Public in the 1920s

In 1924 the Bronfmans opened their first distillery in La Salle, across the St. Lawrence River from Montreal. In the same year they incorporated under the name Distillers Corporation Limited.

Two years later the family sold a 50-percent interest to Distillers Company, an amalgamation of British distillers that controlled more than half the world's scotch market and from which the Bronfmans had been importing scotch in bulk. In exchange for a half share in Distillers Corp., the British Enterprise gave the Bronfmans Canadian distribution rights for its brands, which included Haig, Black & White, Dewar's, and Vat 69.

At about the same time the Seagram family's distilling business became a public company. The enterprise had begun in 1883 when Joseph Emm Seagram became sole proprietor of a distillery in Waterloo, Ontario, where he had worked since the 1860s. Seagram later turned to politics (he was a Conservative member of Parliament from 1896 to 1908), and also devoted much of his time to horse racing. His company was a leading Canadian rye producer with two popular brands, Seagram's '83 and V.O., which was introduced in 1909. (Joseph Seagram's racing colors, black and gold, still appear on the labels of V.O. bottles.)

In 1928, two years after Seagram went public, the Bronfmans' Distillers Corp. acquired all stock in the distillery and itself became a public company. The merged company took the name Distillers Corp-Seagram Limited. W. H. Ross was president, and Sam Bronfman was vice-president. In its first year the company netted $2.2 million in profits, most of it from the Bronfmans' busy bootlegging work. In 1929 Sam Bronfman prepared a $4.2 share offering to finance expansion in the highly successful export business. By 1930, however, company profits were declining, and the share offering had to be postponed.

By that time the border between Canada and the United States was extremely dangerous for illegal alcohol transport, so most trading was done by sea. The Bronfmans had established warehouses on the coast and subsidiaries called Atlantic Import and Atlas Shipping. Schooners shipped the contraband goods into the United States in the dead of night.

Post-Prohibition Expansion

Prohibition ended in the United States in 1933. The next year a conservative lawyer, Richard Bedford Bennett, was chosen to head the Canadian Conservative Party and immediately launched an investigation into the liquor smuggling industry. The Bronfmans were arrested, and a year later they were tried. The judge threw the case out of court.

In 1928 Sam Bronfman had anticipated the end of Prohibition and begun to stockpile and age whiskey. Now the company owned the largest private stock of properly mellowed whiskey. This lucrative position enabled it in 1933 to acquire 20 percent of Schenley, whose product line included the well-known Golden Wedding brand of rye whiskey. When Sam Bronfman informed the Distillers Company board in Scotland of the move and requested an increase in whiskey prices, he was told at an acrimonious board meeting that Distillers would not agree to either proposal. In response, the Bronfman brothers raised $4 million and bought out the Distillers Company's holding in Distillers Corporation-Seagrams Limited. W. H. Ross resigned after the split, and Sam Bronfman became president.

The company then purchased the Rossville Union Distillery in Lawrenceburg, Indiana, and set up Joseph E. Seagram & Sons Inc. to operate the U.S. venture. Schenley's board of directors suggested an equal partnership in the American operation, but when Sam Bronfman found out that Golden Wedding was not aged before it was sold, he immediately rejected the plan. Soon afterward, Seagram and Schenley parted company. Schenley held the top position in the whiskey market until 1937, lost it to Seagram until 1944, regained it until 1947, then lost it to Seagram for good.

Blending and aging became Seagram's hallmark. Sam Bronfman wanted to quash the somewhat dubious image of drinking whiskey that had developed in the bootlegging era and replace it with a more respectable and refined one. In promoting his products he would use one of three descriptions of the blending process: a formal outline of the details of the process; a short definition ("Distilling is a science; blending is an art"); and an informal explanation ("Look, when a man goes into a store for a bottle of Coca-Cola, he expects it to be the same today as it will be tomorrow.... The great products don't change. Well, our product's not going to change either"). Seagram would maintain "blending libraries" at its offices in New York, Montreal, and Paisley, near Glasgow, where samples of the company's different types of straight whiskies were continually catalogued and tested into the 1990s.

The company purchased Maryland Distillers, Inc. and its Calvert affiliate in Relay, Maryland, in 1934 and imported its own aged Canadian stock to blend with its new American distillates. The resulting product came out under the Five Crown and Seven Crown labels. A few years later the company built a new distillery in Louisville, Kentucky. By 1938 Distillers-Seagram had approximately 60 million gallons of whiskey aging in its three American plants.

The Bronfman brothers revolutionized liquor marketing by selling their products to distributors already bottled. Other distillers sold liquor to local rectifiers in barrel consignments, thereby losing control over the final product. The Bronfmans' method allowed Seagram to maintain the kind of quality control that builds brand loyalty. The practice became industry standard. By the end of 1936 Seagram sales were up to $60 million in the United States, with another $10 million in Canada. By 1948 total sales exceeded $438 million, and the company posted an aftertax profit of $53.7 million.

Sam Bronfman had always been impressed with British aristocracy. When George VI and Queen Elizabeth visited Canada in 1939, Bronfman blended 600 samples of whiskey before creating the prestigious Crown Royal brand in their honor. He also purchased the Chivas distillery in Aberdeen, Scotland, because its operators owned a grocery store that served the royal family when they were in Scotland. Chivas Regal developed into the best-selling deluxe scotch whiskey in the world.

Expanding Beyond Whiskey in the 1940s

In the 1940s Seagram expanded from the whiskey business into the larger liquor industry. Its entry into the wine markets began with a 1942 partnership with German vintners Fromm & Sichel to purchase the Paul Masson vineyards in California. (Seagram would not sell its 96-percent interest in Paul Masson until the mid-1980s.) Eight years later the company bought a majority interest in Fromm & Sichel. During World War II Seagram imported rum from Puerto Rico and Jamaica and acquired several West Indies distilleries which would later introduce the Captain Morgan, Myers's, Woods, and Trelawny labels. Seagram also purchased Mumm's Champagne, Perrior-Jouet Champagne, Barton & Guestier, and Augier Frères.

Sam Bronfman took the company in a dramatically new direction in 1950 when he invested in the Alberta oil company Royalite. He later sold his interest in Gulf and purchased the Frankfort Oil Company. In 1963 Seagram acquired the Texas Pacific Coal and Oil Company for $276 million. Frankfort and Texas Pacific were then merged to form Texas Pacific Oil Company, Inc.

In 1957 Edgar Bronfman, Sam Bronfman's son, became the company's president. He resurrected Calvert Reserve by remarketing it as Calvert Extra and promoting it with a personal tour. He also expanded Seagram's brands of rum, scotch, and bottled cocktails (manhattans, daiquiris, whiskey sours, and martinis), and began to import wine on a large scale. By the end of 1965 the company was operating in 119 countries and had surpassed $1 billion in sales.

Between 1961 and 1971, sales of blended whiskey by all makers dropped from 60 to 20 percent of the total hard liquor market, but 7 Crown, V.O., Chivas, and Crown Royal continued to capture an increasing share of their shrinking markets and Seagram revenues and profits maintained their growth. In 1975, however--the same year the company name was changed to The Seagram Company Ltd.--Seagram's earnings slipped 9 percent to $74 million. 7 Crown sales dropped by 600,000 cases, and V.O. was down 300,000 cases. Edgar Bronfman decided to reorganize the company's board of directors and management. A new executive committee was formed with another Bronfman brother, Charles, at its head. In 1977 Seagram recorded a net income of $84 million on sales of $2.2 billion.

In the late 1960s Edgar Bronfman decided to get involved in the film industry. He bought $40 million of MGM stock, and in 1969 replaced Robert O'Brien as the studio's chairman. MGM lost $25 million in the next year, and Bronfman resigned from the studio. Seagram lost about $10 million in the short-lived venture. He found some success in the entertainment industry later when his Sagittarius Productions Inc. staged several Broadway successes (including 1776 and The Me Nobody Knows).

The fabulously wealthy Bronfman family received extensive media attention in the 1970s. Details of Edgar's private life, exposed in divorce proceedings, were eagerly reported in the tabloids; and in 1975, the family had to contend with the alleged kidnapping of Edgar's 23-year-old son, Samuel II. The incident and subsequent trial became headline news in many countries. Mel Patrick Lynch, the defendant (a fireman from Brooklyn, New York) was acquitted of kidnapping charges but convicted of extortion. Throughout the trial, Lynch maintained that Sam II was his lover and that the kidnapping was a hoax cooked up by Bronfman in order to lay his hands on some of the family cash. Sam II was reunited with his father; both of them hotly denied Lynch's version of events.

Continued Diversification in the 1980s

In 1980 Seagram sold Texas Pacific to the Sun Company for $2.3 billion, but when Edgar wanted to reinvest the money in St. Joe Minerals, he was turned down even though he offered $45 a share for stock that had been selling at $28 a share. Conoco also rejected Seagram's advances. Du Pont, Seagram's third choice, accepted a bid on 20.2 percent of the company's stock.

Seagram made several other diversification moves in the 1980s. In 1981 the company formed Westmount Enterprises to finance its beverage ventures and market its new gourmet frozen dinners. Seagram also began manufacturing and marketing premium mixers jointly with the Coca-Cola Bottling Company of New York, and purchased 11.6 percent of Biotechnica International. Seagram ventured increasingly into the wine industry through its Seagram's Vinters division. In 1984 Sterling Vineyards of Calistoga, California, was acquired. Three years later, Mumm Napa Valley was founded in Rutherford, California, as a California sparkling winery. Seagram further expanded its beverage offerings in 1988 when it acquired fruit juice and fruit beverage maker Tropicana Products, Inc.--the second-largest U.S. orange juice producer--from Beatrice Co. for $1.2 billion. Seagram, meantime, had also acquired in 1984 the Oddbins Limited retail outlet chain in the United Kingdom.

In 1985 Seagram underwent a thorough reorganization of its companies, brands, and personnel. The company spent $924 million for Martell S.A. of France, adding the Martell brand of cognac to its product line. Seagram also launched a new advertising campaign aimed at upgrading the image of liquor consumption, and Edgar Bronfman asked the television networks to suspend their ban on advertising for distilled spirits. However, the three major broadcasters all refused to air a commercial comparing the alcohol content of whiskey, wine, and beer.

Entertainment over Distillation in the 1990s

By the late 1980s Edgar Bronfman had settled upon his successor, surprising many observers with his choice of his maverick younger son, Edgar Jr., over the college-educated Samuel II. This choice would quickly have a profound impact on the direction of Seagram. Before joining the family firm in 1982, Edgar Jr. spent much of his time in Hollywood, where he coproduced the 1980 box-office failure The Border (which starred Jack Nicholson). It was in the direction of entertainment that Edgar Jr. eventually--and dramatically--moved Seagram.

His first moves of the 1990s, however, came in the company's core distilled spirits business. In 1991 Seagram sold seven brands to the Jim Beam subsidiary of American Brands Inc. for $372.5 million. Those divested--which included Lord Calvert Canadian Whiskey, Wolfschmidt Vodka, and Ronrico Rum--were mid-range brands, and Seagram wished to concentrate on higher-margin premium brands, such as Crown Regal. Two years later, Seagram added another premium brand to its stable when it acquired the worldwide distribution rights to Absolut vodka for about $1.25 billion. Seagram also expanded its Tropicana Products unit through the early 1995 purchase of the beverage operations of Dole Food Co. for $285 million.

The expansion into entertainment began in 1993 with the purchase of a 15 percent interest in Time Warner Inc. for $2.2 billion. After Edgar Jr. added the CEO title in 1994 to his position as president (with Edgar Sr. remaining chairman), Seagram in April 1995 sold its holdings in Du Pont, receiving about $11 billion in the process. (This sale was widely criticized in the next few years as Du Pont's stock ran ahead of even the extraordinary bull market.) The proceeds were almost immediately reinvested when Seagram later that month acquired 80 percent (later increased to 84 percent) of MCA, Inc. from Matsushita Electric Industrial Company, Ltd. for $5.7 billion. MCA--whose name Seagram changed to Universal Studios, Inc.--included Universal Pictures film studios, MCA Television Group (renamed Universal Television Group), Putnam Berkley Group publishing unit (which Seagram sold in December 1996 for $330 million), MCA Music Entertainment Group (later known as Universal Music Group), Universal theme parks, and Spencer Gifts, a chain of specialty gift shops.

In June 1996 Seagram, prompted by declining liquor sales in the United States, began advertising its brands via television and radio, breaking the voluntary U.S. ban. The company fell from its position as the world's number one distiller when Guinness PLC and Grand Metropolitan PLC merged in December 1997 to form Diageo PLC. Seagram in 1997 and 1998 divested its holdings in Time Warner, ending up with a pretax profit of $2.13 billion on its short-term investment. Seagram then in late 1997 purchased the 50 percent of USA Networks that it didn't already own for $1.7 billion. The following February Seagram spun off USA Networks (which owned three cable services: USA Network, the Sci-Fi Channel, and Sci-Fi Europe) and most of its Universal Television Group to HSN Inc. in return for $1.2 billion in cash and 45 percent of the stock of HSN, which was controlled by media titan Barry Diller and soon changed its name to USA Networks Inc.

With the proceeds from these deals in hand, Seagram announced in May 1998 that it would acquire PolyGram N.V., the world's largest music company, for $10.4 billion. It planned to merge PolyGram's music labels into those of Universal Music Group, which would then be the world leader in music. Seagram planned to sell PolyGram's nascent film unit, PolyGram Filmed Entertainment, and was also considering other sales of noncore operations and real-estate holdings. Further funds were to be raised through the divestment of Tropicana Products. Originally, Seagram announced that it would sell the unit to the public through an initial public offering. However, with the IPO market not as attractive as it was earlier in the decade, Seagram struck a deal with PepsiCo, Inc., announced in July 1998, whereby the juice business would be sold to the beverage giant for $3.3 billion in cash. The following month Ocean Spray Cranberries Inc., a juice maker with a distribution deal with PepsiCo, planned to attempt to block this sale. Also up for speculation was the future of Seagram's liquor business, which was suffering from the collapse of several lucrative markets in Asia because of the Asian financial crisis. The addition of PolyGram and the subtraction of Tropicana would create a Seagram where entertainment had the lead role, while liquor played second banana--an amazing turn of events in an even more amazingly brief span of time.

Principal Operating Units: The Seagram Spirits and Wine Group; Seagram Chateau & Estate Wines Company; Universal Pictures; Universal Studios Home Video; Universal Television Group; Universal Music Group; Universal Studios Recreation Group; Universal Studios Consumer Products Group; Spencer Gifts; Universal Studios New Media Group.

Further Reading:

• Bronfman, Edgar M., Good Spirits: The Making of a Businessman, New York: Putnam, 1998, 248 p.
• Dalglish, Brenda, "The Bronfman Gamble: Seagram's $8-Billion Purchase of MCA Shows That Show Biz Is Hot," Maclean's, April 24, 1995, pp. 40+.
• Deogun, Nikhil, "Ocean Spray May Try to Block PepsiCo from Acquiring Seagram's Tropicana," Wall Street Journal, August 6, 1998, p. A7.
• Deogun, Nikhil, and Vanessa O'Connell, "Storming the OJ Wars, Pepsi to Buy Tropicana," Wall Street Journal, July 21, 1998, pp. B1, B6.
• Egan, Jack, "Jr.'s Got Show Biz; What About Booze?," U.S. News & World Report, June 22, 1998, pp. 50+.
• Fabrikant, Geraldine, "At Seagram, Waiting for the Glitz to Pay Off," New York Times, September 18, 1997, pp. D1, D8.
• Flynn, Julia, and Laura Zinn, "Absolut Pandemonium," Business Week, November 8, 1993, pp. 58, 62.
• Freedman, Alix M., "Seagram Scion: He Has Style Galore, but Can the Boss's Son Run a Liquor Empire?," Wall Street Journal, December 3, 1987, pp. 1, 20.
• Freedman, Alix M., and Ed Bean, "Seagram to Buy Beatrice Unit for $1.2 Billion," Wall Street Journal, March 11, 1998, pp. 2, 12.
• Harris, Kathryn, "Edgar in Hollywood," Fortune, April 15, 1996, pp. 102+.
• Kelley, Kristine Portnoy, "Looking Outside the Box: The Seagram Beverage Co. Studies Alternatives in Its Search for Success," Beverage Industry, May 1994, pp. 30+.
• Koselka, Rita, and Randall Lane, "What Matsushita Left on the Table," Forbes, July 3, 1995, pp. 46+.
• La Franco, Robert, "The High Cost of Hollywood," Forbes, April 7, 1997, pp. 44+.
• Laing, Jonathan R., "Lights! Camera!: After Years of Preparation, the Action Is About to Start at Seagram," Barron's, April 27, 1998, pp. 35-36, 38-39.
• Leinster, Colin, "The Second Son Is Heir at Seagram," Fortune, March 17, 1986, pp. 28+.
• Newman, Peter C., King of the Castle: The Making of a Dynasty: Seagrams and the Bronfman Empire, New York: Atheneum, 1979.
• Norman, James R., "Turning Up the Heat at Du Pont," Forbes, August 5, 1991, pp. 45+.
• O'Connell, Vanessa, "Seagram May Be About to Seek a Buyer for Tropicana," Wall Street Journal, May 18, 1998, p. B10.
• Orwall, Bruce, "Seagram Considers Sale of Film Unit of Polygram and Real-Estate Assets," Wall Street Journal, August 3, 1998, p. B4.
• Orwall, Bruce, and Eben Shapiro, "Seagram to Sell Tropicana Unit to Public," Wall Street Journal, May 22, 1998, pp. A3, A12.
• Reilly, Patrick M., "Slipped Disks: PolyGram, EMI Await Dance Partner," Wall Street Journal, May 7, 1998, p. B18.
• Rothman, Andrea, and Mark Maremont, "The Maverick Boss at Seagram," Business Week, December 18, 1989, pp. 90-93, 96, 98.
• Shapiro, Eben, "Seagram Completes Spinoff to HSN of TV Businesses," Wall Street Journal, February 13, 1998, p. A5.
• ------, "Seagram Sells Last Time Warner Block for $911 Million," Wall Street Journal, May 28, 1998, p. B8.
• Sherrid, Pamela, "Give Me a Chivas and Natural Soda," U.S. News & World Report, July 17, 1989, pp. 42+.
• Stevenson, Mark, "Indomitable Showman," Canadian Business, October 1994, pp. 22+.
• Zinn, Laura, and Julia Flynn, "Edgar Jr.'s Not So Excellent Ventures," Business Week, January 16, 1995, pp. 78-79.

Source: International Directory of Company Histories, Vol. 25. St. James Press, 1999.