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Profile; A man not scared to face the music; Edgar Bronfman Jr

Forget the investors; Seagram's chief wants PolyGram.
WHEN Seagram chief executive Edgar Bronfman told analysts six weeks ago that the company's Universal Studios was back on track, nobody could have scripted a bigger disaster.

First, Bronfman's plan to charge cinemagoers more for big-budget films, recently proposed to an industry conference in New York, was derided in Hollywood. Then, two films that Universal was banking on, Primary Colors and Mercury Rising, bombed, leading to the departure of several top executives.

To make matters worse, Seagram's liquor and juice business is being squeezed in Asia, a major market. That led it to report a third-quarter loss before gains of $7m (pounds 4.3m), compared with a profit of $27m in the period a year earlier.

Now Bronfman has confirmed he is in talks with Philips to buy PolyGram, the world's largest music company with artists such as Elton John and U2, for an estimated $10bn. The move would vault Universal to the top of the music business, but investors wonder if the acquisition could prove an expensive folly for the 42-year-old chief.

"I'd give him an F for being attuned to shareholder value," said Philip Foreman, a portfolio manager at Composite Research & Management, which owns Seagram shares.

Why such a bad rating? Profits at Universal rose 31 per cent to $149m in the third quarter, the first increase since Montreal-based Seagram bought 80 per cent of Universal, then known as MCA, for $5.7bn in 1995.

The answer lies in Seagram's falling share price and a host of unfulfilled promises from the company's high-profile film studio. To finance the acquisition, Bronfman sold Seagram's 23 per cent stake in DuPont, the big US chemical company, for $8.7bn. Today that investment would be worth $19.1bn. Seagram's stock is up just 50 per cent. "They sold DuPont and got some profit," said Foreman. "They should have at least bought back shares instead of investing in movies."

Investors might be happier had some of the movies done better. But apart from Steven Spielberg's The Lost World last summer, Universal has not released any blockbusters under Bronfman. This year Universal ranks sixth among film distributors with just 6.3 per cent of the US and Canadian box office. The studio's prospects are not so hot for the rest of the year, either: it has no summer "event" film on tap, and its best bet for a hit may be the sequel to Babe, its comedy about a talking pig.

After the failure of Primary Colors four executives resigned, including Marc Platt, president of production, and Buffy Shutt and Kathy Jones, the marketing chiefs. Bronfman says Universal chairman Frank Biondi's job is safe, but the departures bolstered the sense of turmoil. "There's a lot of new hires coming and going, and that's always a sign of short- term trouble," said Barry Hyman, an entertainment analyst with the investment firm Ehrenkrantz King Nussbaum.

Bronfman doesn't appear to be listening to critics, as is shown by his desire to expand the company's fast-growing music business, which doubled its market share to 14.9 per cent last year.

He also sold most of the company's television businesses, including the USA Network and Sci-Fi cable channels, to Barry Diller's Home Shopping Network. The deal raised $1.2bn in cash and gave Universal a 45 per cent stake in Diller's company, now known as USA Networks. That investment has risen 18.5 per cent in value since the agreement was reached in October.

Bronfman also is trying to get Hollywood to deal with runaway costs. The idea to charge cinemagoers more for big-budget pictures is one idea. He has brought in consultants and managers who have wrung out more than $100m in cost savings from Universal. And he's expanding the company's lesser-known but profitable theme park business.

Universal and a partner, Rank Group, are building a $2.6bn vacation complex in Orlando, Florida, that includes a theme park called Islands of Adventure, hotels, a restaurant and an entertainment site that will house the world's largest Hard Rock Cafe.

Another park is planned for Japan, and Universal also has its eye on Europe. "He's looking for all these different ways to try to make money," Hyman said. "At some point, it will work."

Bronfman said at the conference in March that Universal was ahead of schedule in its five-year recovery plan. He also said this week that Seagram had no plans to separate its entertainment and beverage businesses. "We have taken Seagram through a dramatic transformation, increased operating profit and increased the value of the assets we own," he said.

In the months after buying Universal, Bronfman appeared to be making all the right moves. He changed the studio's name from MCA to the more recognisable Universal and diplomatically eased out its top executives, Lew Wasserman and Sid Sheinberg, who had fought with the studio's previous owners, Matsushita Electric Industrial.

Three years later, though, Bronfman feels he isn't getting enough respect. He complained at the New York conference that some people still believed he bought Universal only to pursue his sideline as a songwriter. His credits include the theme song for last year's Sylvester Stallone film Daylight.

The pursuit of a music company has, for some critics, added to the perception that he's not serious. At the least, they say, he's taking a scattergun approach to the entertainment business. "The company has to come forward and display a cohesive strategy on how to develop shareholder value," Foreman said. "They're somewhat all over the map."

What the critics may be overlooking is PolyGram's film business, the nearest thing Europe has to a film studio. Although not yet profitable, it has spent $1.2bn since 1991 building its operations. Hollywood is hungry for new talent, and perhaps PolyGram could provide it.