Staff Reporter

It's quite a feat to be simultaneously described as a star-struck na & #271;f by some and an emerging Hollywood powerhouse by others, but Seagram Co. Ltd. Chairman Edgar Bronfman Jr. has done just that.

Now, the scales of public opinion could finally be tipping in Bronfman's favor. Confidence in the company has been increasing and the stock has been gaining despite one of the more disappointing quarters of recent years.

"Bronfman has done a good job of reinventing and restructuring a somewhat mature, family-owned company into the right business which is the high-risk, high-potential entertainment business," said Chris Dixon, an analyst for PaineWebber.

For the second quarter ended Dec. 31, the company reported a net loss of $266 million (63 cents a share), compared with net income of $28 million (8 cents) for the like period a year ago. Revenues were $3.3 billion vs. $2.9 billion. The second quarter also included a one-time charge of $244 million for Seagram's December acquisition of PolyGram.

It was the first quarterly loss in years, but it still beat analysts' expectations and was due largely to the wine and spirits division, started by Bronfman's grandfather in 1916. The unit's cash flow climbed to $288 million, in part due to sales picking up in Asia.

The mature wine and spirits division is expected to keep generating a large amount of cash flow, which is then used to finance the show business endeavors. "It's not a bad strategy, especially considering that last year was a terrible one for the film division," Dixon said.

Seagram's Universal Pictures unit did indeed have a terrible quarter, with film operations showing a second-quarter loss of $63 million, compared with earnings of $98 million a year earlier.

The well-chronicled failures include "Meet Joe Black" and "Babe: Pig in the City" and led to the departures of both Universal Studios Chairman Frank Biondi and Universal Pictures Chairman Casey Silver. The new management immediately started retooling the division, including new marketing tactics for movies already in the pipeline, as well as joint ventures that lessen a studio's financial exposure.

Despite Universal's travails, it is Seagram's redirection toward entertainment that has been largely responsible for the strong showing on Wall Street. After hitting a low of $25.13 on Oct. 6, the stock soared to a high of $50.25 on Feb 16. Over the last several weeks, it has drifted back down to about $45 per share still an 18 percent gain from where the shares were a year ago.

"The company's good stock performance is primarily due to a greater focus on its core business, which is entertainment," said Raymond Katz, an analyst at Bear Sterns.

The stock jumped from its October low as soon as executives were free to discuss the PolyGram acquisition. Brokerages following the company now uniformly have "accumulate" or "buy" ratings on the stock.

Most of the enthusiasm from analysts and company executives revolves around music. Within the next several years, it is expected to generate more than half of Seagram's overall cash flow.

Universal's Music Group is already off to a good start, with cash flow reaching $81 million in the second quarter, up from $46 million for the like period a year ago. Part of the growth came from several smash-hit albums, including that of country singer Shania Twain. Also, the $10.4 billion acquisition of PolyGram brought a new stable of artists to the Universal Music Group and makes it the largest record company in the world.

"The PolyGram acquisition will do well for Seagram," Katz said. "It fits in well with Seagram's holdings, and I expect it to continue to be a boon to the company as its assets are integrated."

As part of that integration, the music division laid off 3,000 employees, and the A & M; and Geffen Music labels were folded into Interscope. Seagram expects to generate $300 million in cost savings in that division by 2001.

Meanwhile, the music group is in discussions to buy the 40 percent of the Def Jam Music Group it doesn't already own.

"Music is a critical issue in Seagram's transformation from a holding company to a leading entertainment company, and the restructuring has been logical so far," Dixon said. "Now the management needs to prove itself. I may disagree with several decisions Bronfman has made over the last couple years, but I always understand where he's coming from."

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