The much-hyped bidding war over music giant PolyGram won't happen, as potential suitors that included former super-agent Michael Ovitz dropped out Monday. That leaves Seagram Co. clear to announce a deal within days--following a series of board meetings this week by PolyGram and its Dutch parent, Philips Electronics, sources said.
Before the estimated $10.5-billion agreement can be consummated, it must be approved by the supervisory and management boards of both PolyGram and Philips. The Seagram board, which met Monday, is expected to approve the acquisition this week, sources said.
An investment group led by Ovitz, and another by entrepreneur Jerry Perenchio, are now out of the picture. A source familiar with Ovitz and the leveraged-buyout firms he brought together to consider a bid--Forstmann Little & Co. and Thomas H. Lee--said the group decided not to make a play for PolyGram after reviewing its books over the weekend and determining that the company "didn't meet the group's risk-and-return investment criteria."
The other potential bidder was a group comprising the Donaldson, Lufkin & Jenrette investment bank, buyout firm Texas Pacific and Perenchio.
With bidders dropping out, PolyGram's stock eased 56 cents Monday to close at $55.81 on the New York Stock Exchange, putting its market value at $10.4 billion. Seagram shares took an even bigger drop, $1.13 to $41.81 on the NYSE, which could make the deal more expensive because Seagram's bid includes stock.
If the Seagram-PolyGram deal clears antitrust regulators, Seagram Chairman Edgar Bronfman Jr. would soon become the most powerful figure in the $40-billion global music business.
Bronfman--who is perceived as a risk taker and highly regarded by the music executives who work for him--is the antithesis of the corporate suits that have overseen the record industry for the last decade. The 42-year-old Bronfman, a sometime lyricist who co-wrote pop star Celine Dion's current single, "To Love You More," is passionate about music and views it as the most critical piece of Seagram's entertainment strategy.
To many observers, what sets Bronfman apart from other entertainment chiefs is that he's not a hired hand. Because his family controls spirits-and-entertainment giant Seagram, Bronfman is seen as a boss with real power and a personal stake in seeing his music division thrive.
In the three years since Seagram purchased 80% of MCA Inc. (now Universal), Bronfman has moved quickly to install a crack team of managers, who in turn, have dramatically bolstered the company's credibility and bottom line in the U.S. market.
He hired Doug Morris to run Universal's music division after the executive was fired by Warner Music. Bronfman also invested in Morris' fledgling Universal label and in controversial Interscope Records--both of which have paid off handsomely.
The way Bronfman snatched Interscope away from other suitors underscores how the Seagram chief works, sources say. After Interscope was dumped by Time Warner in 1995, PolyGram's Island Records division was considered the leading candidate to pick up 25% of the cutting-edge label for about $110 million.
But Bronfman elbowed his way into the negotiations by bidding $200 million for half of Interscope--a price that Island founder Chris Blackwell said PolyGram's management balked at spending because the deal was considered too risky. Interscope went on to generate more than $300 million in revenue during the following year.
"I believe Seagram's acquisition of Interscope was a pivotal deal in the record business--and it was a brilliant move for Bronfman," Blackwell said Monday. "The guy has guts. He took a shot and it paid off. And look at him now, he's doing it again. With the purchase of PolyGram, Universal will immediately become an international powerhouse."
Interscope co-founder Jimmy Iovine says Bronfman is different from other corporate bosses in another way: He treats the individuals who manage the labels in his music division with respect. According to Iovine and other executives at Seagram, Bronfman is an accessible leader who seeks out their opinions and allows them to run their businesses without interference.
"Most people in Edgar's position have never taken the time to fully understand what it takes to function in the music industry," said Iovine, who had his share of run-ins with Time Warner's corporate hierarchy before joining Seagram.
"Edgar and the people close to him are always available, and they pay attention. Not only do you have direct access to him, you welcome it."