THE NEW YORK TIMES, SUNDAY, NOVEMBER 9,1986.

EDPERINVESTMENTSLTD.Holding company forPeter and Edward Bronfman'sbusiness interests

The 'Poor' Bronfmans' BillionsOusted fromSeagram, Edwardand Peter builttheir own empire.

By DOUGLAS MARTIN

TORONTO

THEY are known as the "other"Bronfmans. Their cousins, Edgarand Charles, are the famous

members of the family who run theMontreal-based Seagram Companyand keep the Bronfman name dancingacross financial, news and societypages. The "other" Bronfmans are Ed-ward and Peter, who were barred bytheir Uncle Samuel from the familydistilling empire some 30 years ago.

The "poor cousins," as they are alsoknown, have found their way. Today,Edward, 59, and Peter, 57, control wellover 100 companies with assets in theneighborhood of $100 billion. Theirholdings include large parts of Cana-da's major mining company, its big-gest forest products company, its larg- .est individual life insurer, its biggestbrewer, a growing battery of financialservices firms and $he hometown base-

ball team, the Toronto Blue Jays.In recent years Edper Investments

Ltd. - their trust fund turned holdingcompany - has been increasinglyreaching south of the border. Besidesvaluable American oil properties, ithas invested in real estate rangingfrom Atlanta's Peachtree Center toDetroit's Fisher Building and theMarina Towers in Los Angeles.

The company recently acquired a 60percent interest in the Dow FinancialServices Corporation, and its surgingmerchant banking business is as likelyto finance a deal in WestchesterCounty as in Calgary. The TorontoBronfmans shun the spirits business,but they supply Americans with milk,beer and orange juice, and only lastweek acquired an Alabama pizzachain.

With its rapid growth, the Edper (acontraction of the brothers' firstnames) empire has come under fire inCanada for an undue concentration ofpower. The Canadian Bankers As~oci-ation last year calculated that ninefamilies own 46 percent of the value ofthe most important companies on theToronto Stock Exchange. Of the ninefamilies, toe Toronto Bronfmans areprobably the leading target of attack."They've created something of such,economic might and political in.fluencethere's hardly anyone left to stand upto it," said Henry !<nowles, a Toronto

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lawyer and former head of the OntarioSecurities Commission.

The other Bronfmans almost nevergive interviews, and leave it to the ex-ecutives of their many companies todefend their financial might. Nor istheir reticence the only characteristicin which they differ from their high-flying cousins. While Edgar and

Charles give every appearance of en-joying their wealth and power, Edwardand, especially, Peter, seem to laborunder the considerable weight of theirbillions. "I don't think I'm secureenough to spend the kind of money mycousins do or live in houses like Itheirs," Peter told Peter C. Newman, I

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author of a biography of the Bronf-man clan, several years ago. (WhilePeter and Edward grew up in a man-sion, it was sma\1er than Uncle Sam'sestablishment, next door.)

But such tender sensibilities havenot deterred the brothers - and theirwe\1-remunerated managers - fromassembling a collection of companiesthat William Stanbury, an economistat the University of British Columbia,calls "totally unpara\1eled." What ismore remarkable still is that most ofthis empire has been put togethersince 1979,when the brothers movedto Toronto from Montreal with a for-tune estimated at $2 billion.

According to Diane Francis, authorof a recent book, "Controlling Inter-est: Who Owns Canada?," what setsthe Toronto Bronfmans apart is"their sheer ability to grab so muchin such a short period of time withsuch immense'leverage." Bronfmanexecutives ca\1 the strategy theybegan implementing in the 1970's"the cascading theory of finance."Basica\1y, it involves an equity invest-ment - genera\1y about 50 percent -at the top of a pyramid, that is par-.layed into further equity investmentsas one cascades down.

The public provides the other halfof the money at p.ac.hstP.pof t.he way.The practice, which at some yearsago ran counter to th~ conventionalwisdom that 100 percent ownershipwas best, has since been adopted byother investors.

Willard L'Heureaux, an executiveof the Hees International Corpora-tion, the fast-growing, publicly-heldmerchant banking unit of which theBronfmans own about 40 percent, of-fered the following example of howthe cascade might work: Brascan,whose ownership is roughly dividedbetween Hees and privately ownedEdper, offers $200 million in newstock. The public (through Hees)buys $100 million and the Bronfmans(through Edper) invest $100million.

Then Trilon Financial, 40 percentowned by Brascan, issues stock.Brascan puts in the $200 million itraised for its 40 percent share of theTrilon issue. The public then matcheswith its 60percent share, or $300 mil-lion. Trilon can then use the $500 mil-lion for its half share of a $1 billion of-fering by Royal Trustco. Edper hascontrol all the way down the line onthe strength of its initial $100 millioninvestment.

Such complex deals are alwaysbound by the group's genera] policyof first seeking out undervalued com-panies, then stripping them of all buttheir most productive assets and pro-ceeding to manage aggressively.Edper looks hard at an acquisition'sunderlying assets, Trevor Eyton, aCanadian lawyer who is president of

Edper, says. "We believe, in a sense,more in tangible values rather thanintangible values." The bottom line isthat the Bronfman babies get biggerand better at the same time, said Mr.L'Heureaux.

According to Mr. Eyton, the grouptries to balance its real estate inter-ests (the field in which the brothershad initial expertise) with natural re-sources (a must for a Canadian com-pany, in their view) and financialservices. Its real estate holdingscome under the umbrella of CarenaHoldings, while much of its energyactivities are under Hees, the fastest-growing area of the Bronfman em-pire with assets up eightfold, to $1.7billion, since 1981.

Other energy companies and con-sumer products such as Labatt,which provide some balance to theboom-and-bust cycle of natural re-sources, are grouped under BrascanHoldings, a large, diversified com-pany whose name derives from anearlier interest in Brazilian utilities.

WHILE the Bronfman broth-ers are "masterful business-men," said Michael Sander-

son, chairman of Merrill LynchCanada Inc., their shrewdest movewas hiring two executives who werenotably skilled at building c.hains ofinterlocking companies - Jack Cock-well, a South African-born accountantwho is the chief operating officer ofEdper, and Mr. Eyton. Toronto Lifemagazine recently named Mr. Eytonthe city's most powerful person, whilehis bosses, Edward and Peter,merely rated an honorable mention.

There is every indication that thereclusive Bronfmans prefer to havethe spotlight focused on Mr. Eyton.Although Peter has played the largerbusiness role, particularly in recentyears, he is considered by associatesto be the shyer of the two brothers.

"Peter hesitates to give his nameianywhere for fear that someone isgoing to be interested in him for hismoney," said a family friend. "I grew

,up in a castle on a hill, sensitive butnot really aware of what was goingon," Peter Bronfman told Mr. New-man. "I had no friends and no realrelationship with my parents."

The Oct. 20 issue of Newsweekmagazine carried a rare public state-ment from Peter in a letter respond-ing to a cover story about humanmemory. He noted that the story con-tained a "glaring omission," namely,that one of the main symptoms of de-pression is difficulty with memory."Depressed people, who are usuallycaught up in their own problems, areoften unable to concentrate and donot retain the things they read orhear," he wrote.

Peter, who went to Yale, has beendivorced twice, and married for a

third time last year. He has threechildren; two daughters are college,students and a son, Paul, works forAstral Be\1evue Pathe, the family'sfilm distribution _company.

Edward, who graduated from theBabson Institute, near Boston, is par-tially deaf, and this, Mr. Newmansaid, "tends to create an air of quiethurt about him." Also divorced, he be-came more private after Delores AnnSherkin, the 37-year-old woman withwhom he lived, died after acciden-tally falling out the window of hisrented townhouse in 1983. He hasthree grown sons; Bruce w9rks forTrizec, Edper's real estate develop-ment company, David Is a broker andBrian is a student.

Both Peter and Edward jog andwork out regularly at a health club.They are said to live in rented apart-ments. Their empire has no single of-ficial headquarters, and Edper's twoco-chairmen float quietly in and outof their companies' various officesaround Toronto, sometimes offeringa suggestion but mostly just keepingup with things, associates say. UnlikeEdgar and Charles, who publiclybickered earlier this year about thenext generation of Seagram's leader-ship, Edward and Peter are said to beamicable partners.

Their major ideas tend to be de-livered in such forums as Edper's an-nual strategy sessions. Each Janu-ary, the brothers and their childrenassemble in Edper's 48th-floor board-room in the center of Toronto's finan-cial district - a handsome enclaveornamented with Inuit and Indian art.With top managers present, theBronfmans review what is jokinglycalled "the family Bible," a book ofdetailed strategic plans for each ofthe empire's companies that typi-ca\1y runs to more than 200pages. Allthe Bronfmans ask questions and ap-prove the plan.

Edper's managers have a strongpersonal incentive to increase thevalue of their companies. Salaries inthe Bronfman empire run a half totwo-thirds below the market rate fortop executives. But they are awardedinterest-free loans to buy shares intheir companies - from $1 million to$3 million, depending on the size ofthe company and the executive'sposition in it. (For example, Mr.Eyton, whose desk boasts a brass jarfilled with Monopoly money, makes$250,000in salary, low for the presi-dent of a $100 billion empire. But hehas made millions in stock.)

Although they get a 10 percent dis-count on the stock purchase, the man-agers are subject to fu\1 downsiderisk if the share price drops. The ruleof thumb is that managers get fiveyears: by then, if they are managingtheir companies properly, theyshould have made at least $1 millionon their stock. "If you run iato-trmJ-ble, it's your company," Mr. Eytonwarns Bronfman chief executives.

The executives' personal stake incompany profits sparks a predictableinterest in cutting costs. There are noclub memberships, no corporate jets,no first-class travel in the Edper cor-porate culture. If a visitor admires apiece of art or an Oriental carpet inan office, executives tend to apologizefor its presence.

WHILE they were growing up,Edward and Peter assumedthey would work for the fami-

ly-contro\1ed Seagram Company. Butin 1953the legendary Samuel Bronf-man (See box) abruptly excludedthem from any hope of leadershippositions, presumably because hewanted to preserve the companysolely for his own children.

Eight years later, he compe\1ed Ed-ward and Peter to sell their trust fundof Seagram's stock to his children ata price $2 below the market price of$28a share. Otherwise, he threatenedlu tin: th~h' ti:lth~r, Allan, trom thevice presidency of Seagram. (Allandied in 1980.)

Edward and Peter pocketed some$15 million from the sale, but theycontinued to labor under their uncle'shuge shadow. When the brothers

made their first effort to take over amajor company, Great-West Life As-surance, in 1969, Uncle Sam inter-vened to stop two major Canadianbanks from lending money to hisnephews, threatening to withdraw hisown considerable business. Aftersome involvement with a dubious mixof venture capital investments, in-cluding a bowling alley, in the early1970s,the Bronfmans took on new ad-visors, including Mr. Eyton and Mr.Cockwell, and their empire began totake shape.

Initially the new team concentratedon real estate, building a glittering of-fice and hotel complex in downtownMontreal. The Bronfmans profitablybought and sold the Montreal Canadi-ens hockey team. Then, in 1979, Ed-ward and Peter moved to Torontoand extended their empire. After abitter takeover battle, they acquired51 percent of Brascan Ltd., a largelyCanadian-owned utility and natural'resources company in Brazil. Bras-can had shortly before sold some util-ity companies to the Brazilian gov-ernment, giving the Bronfmans $500million in to play with.

The Bronfmans and their advisorsquickly put it to use. In 1979,they wonvoting control of the Trizec Corpora-tion, Canada's largest publicly tradedreal estate developer. In 1980, theywon a bruising fight for control of No-randa Inc., Canada's largest miningconcern. Ironically, this has proven tobe the worst of the Bronfmans' acqui-sitions. After bleeding profits from

The- Financial Post/Brian Condr,ln

Edward Bronfman

the rest of their company for sometime, Noranda appears to be turningaround. It has sold assets to reduceits debt, and copper prices appear tobe rising.

Edper's investments, analysts say,have left the brothers poorer thantheir Montreal cousins but richerthan they would have been if they hadbeen allowed to hold on to their Sea-gram stock. In 1980,according to ana-lysts, the "poor cousins" were atleast $200 million richer than if UncleSam had allowed them to keep theirstock. The figure would undoubtedlybe much higher now.

Not everyone celebrates their suc-cess. Edper executives have becomethe major defenders of big businessin recent parliamentary hearings.Financial services companies, Ed-per's most active area of expansion,have come under particular attack.Publicly, Edper executives arguethat internal checks and balancespreventabuse of their power. "Ourvalues and corporate principles camefirst" said Mr. L'Heureaux. "Thefina~cial wizardry came second."

That the Bronfman brothers them-selves are cooler under fire than mostexecutives was suggested by an off-hand remark Peter Dronfman made

in 1978,when the two men announcedthe sale of the Montreal Canadiens."In this world if you can make a fewdollars and not have to take Bufferinto do it," he said, "I say you're aheadofthegame." .

THE PROS AND CONS OF BEING A BRONFMANTORONTO

The Bronfman family is often likened in wealthand influence to Europe's Rothschilds, who builtan international banking empire. But the Bronf-mans' story - as befits a saga set in the Cana-dian prairies and founded on liquor - is consider-ably grittier.

Ekiel and Minnie Bronfman left their Russianhomeland in 1889 and moved to Saskatchewan,accompanied by their three children and a rabbi.Eventually they had five more children, includingSamuel, who (the account varies) was born eitherduring the ocean crossing, or two years later inManitoba. It was Samu~ who emerged as thescrappiest, most successful Bronfman and, in theview of many, the most skilled businessmanCanada has ever produced. According to "TheBronfman Dynasty," an unauthorized biographyof the family by Peter C. Newman that was pub-lished in 1978, Mr. Bronfman, when asked man-kind's most significant invention, replied with oneword: "Interest."

The Bronfmans tried a handful of businessesbefore turning to hotels and, through the saloons,to the liquor business. When Prohibition was im-posed in Canada in 1916, the Bronfmans set upmail-order sales from Quebec, the only provincethat was still wet. When the United States wentdry, the family is said to have supplied majorAmerican bootleggers. And when the UnitedStates repealed Prohibition, the Bronfmans wereready with Seagram's Seven Crown.

A short, fiery man, Mr. Sam, as he was known,was driven by a desire to be accepted by Cana-da's English establishment, according to Mr. New-man. "A Russian by background, a Canadian bypersuasion, a Texan by temperament, Sam Bronf-man was an upperclass Englishman by aspira-

tion," he wrote. But he never realized his ambitionto be a Canadian senator, an appointed position towhict l1e apparently thought his campaign contri-butions entitled him. "It should have been mine,"Mr. Newman quotes Mr. Bronfman as shouting toa Seagram subordinate in 1955 when another manwas chosen. "I bought it! I paid for it'"

Mr. Sam died in 1971, but to a degree his de-scendants still live in his shadow. When Mr. New-man was writing his book, Charles Bronfman, wholast week was named co-chairman of the Sea-gram company, obtained a copy of the galleyproofs from what Mr. Newman said Mr. Bronfmancharacterized as "an unnamed source." Mr. New-man corrected some facts, but refused to alter thebook's general tone, which Mr. Bronfman saidwas too critical of the past. The book sold outquickly in both the United States and Canada. Re-centlya New York writer searching for it herecould not find thebook at major re-tailers or at the li-brary. Finally heobtained a photo-copy from asource in the Sea-gram Company.

"I guess thereare pros and consto being a Bronf-man," said PeterBronfman - theToronto-basedson of Sam'sbrother Allan, "butJ'mnot sure what 'Mr. Sam'the pros are."

,TorontoStar _ f.