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BUILDING THE PERFECT BEAST

Vivendi’s recent revelation that it was considering spinning off UMG in an IPO led to an even bigger revelation—as one bank valued Universal at a stratospheric $22.5 billion. In order to grasp the magnitude of the new age of prosperity for UMG and across the music business resulting from the wildly successful transition from a sales-based business to one powered by streaming, it’s helpful to consider the history of transactions that have shaped the Big Three music groups into such valuable properties. While Sony Music came into being when Walter Yetnikoff ran point on Sony Corp.’s $2b acquisition of CBS Records in 1988, UMG and WMG are in their present state largely due to myriad moves made by Edgar Bronfman Jr. Bronfman may be the most controversial mogul in music-business annals, but he has few, if any, rivals when it comes to the buying and selling of high-value properties, starting with UMG and WMG.

Seagram, the family beverage business, got into entertainment in 1995, when Bronfman persuaded his father, Edgar Bronfman Sr., and his uncle, Charles Bronfman, to sell Seagram’s 25% stake in DuPont for $8.8b to finance the acquisition of 80% of MCA from Matsushita for $5.7b. Through the deal, the company took ownership of Universal Studios and MCA Music Entertainment, comprising the MCA and Geffen labels. Soon thereafter, MCA was renamed Universal Music Group, which became far more formidable when Seagram bought 50% of Interscope from Time Warner for $200m—a bargain if there ever was one. Interscope had been launched in 1990 by Jimmy Iovine and Ted Field as a $20m JV with WMG. In 1997, Bronfman sold Universal’s TV assets to Barry Diller’s HSN network for $4b, and a year later, he made a monumental move, purchasing Philips Electronics’ 80% stake in PolyGram for $10.6b. PolyGram’s labels—A&M, Island, Motown, Def Jam, Polydor and Mercury—were then folded into UMG. To help finance the acquisition, Seagram’s board authorized the sale of Tropicana through an IPO. The company also sold its 5.7% stake in Time Warner. These acquisitions—totaling $16.5b—transformed the venerable Canadian beverage company, with such high-profile brands as Chivas Regal, Martell, Crown Royal, VO and Captain Morgan, into an unlikely entertainment powerhouse.

In 2000, French company Vivendi, whose businesses were primarily in the water-utilities and waste-management sectors until it founded Canal+, France’s first pay-TV channel, in 1983, paid a staggering $34.4b to acquire Seagram/Universal, while also assuming about $7b in debt. It was a big score for Bronfman, who sold Seagram for more than twice as much as he’s spent to build Universal. The deal included Universal Studios, UMG and the beverages business, which it immediately sold to Diageo and Pernod for $8.15b, putting the final nail in Seagram’s coffin. Vivendi Universal, comprising Vivendi, Canal+ and Seagram, began trading in December 2000. Twelve months later, Bronfman was out as the chairman of VU. But he was far from finished with the music business.

In February 2004, Bronfman finalized the acquisition of Warner Music Group from Time Warner for $2.6b—another bargain in retrospect—and appointed himself Chairman/CEO. To his credit, Bronfman was bullish on the transition to digital; in 2008, a struggling Atlantic became the first major to generate more than half of its sales in the U.S. from digital content. His reign lasted just over seven years; in May 2011, WMG and Bronfman announced the company’s sale to Len Blavatnik’s Access Industries for $3.3b cash. Blavatnik was a former board member and substantial shareholder of WMG at the time of the purchase. That August, Bronfman took on the chairman’s role and Stephen Cooper was named CEO. Bronfman stepped down on January 31, 2012, officially ending his long, checkered dalliance with the music business.

Meanwhile, Vivendi, which had initially been sent reeling by the enormity of its outlay, righted itself and began to grow UMG, paying $2.05b for BMG Publishing in 2006 and creating what was then the biggest major publisher in UMPG. In 2012, Vivendi and the Lucian Grainge-led UMG paid $1.9b for EMI Recorded Music. As an EU-stipulated condition of the deal, Parlophone was sold to Blavatnik’s WMG for $765m, while Sanctuary ($60m) and Mute ($10m) were sold to the relaunched BMG, and the European rights to the NOW compilation series were sold to Sony for $60m.

Although Bronfman has received mixed reviews throughout his career, his achievements are significant. He deserves credit for bringing in Doug Morris to run UMG after he’d been unceremoniously pushed out of WMG. As for Bronfman’s run with WMG, not only did he sell the company for more than he paid for it, he also more than doubled his investors’ money—during one of the most difficult periods in music-business history and a deep economic trough, making WMG one of the most successful leveraged buyouts of the time. During the same period, EMI—a similar company that had also been acquired by private equity—was mismanaged into bankruptcy by Guy HandsTerra Firma. And while WMG increased in value and marketshare, EMI was sold for scraps. In the negative column, he incomprehensibly chose Lyor Cohen to head up WMG, stunting the growth of the music group. Bronfman’s legacy may be tarnished, but his role in the creation of UMG and the rebuilding of WMG can’t be denied.

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