The last tycoons: the secret history of Lazard Frères & Co

by William D. Cohan

  REFLECTING ON THE denouement, Marianne Gerschel, Andre's granddaughter, said that "a certain phase in the history of Lazard" had now passed reminding her of "the famous remark of Hegel that 'the owl of Minerva takes flight at dusk'"--Hegel's view that wisdom comes only in hindsight.

  On the last day of August 2005, Bernard Sainte-Marie, a thirty-two-year employee of Lazard in both London and Paris, announced his resignation in a bitter and ironic e-mail that he sent to everyone at the firm and then leaked instantly to the press. "I will be leaving Lazard effective tomorrow after more than 32 years with various firms of the Group around the world," he wrote.

  I will be pursuing my career in the general unemployment line, as I am neither old enough or wealthy enough to retire. I wish myself every good fortune in the future. I am leaving on the high note of the IPO of Lazard with the knowledge (i) that I will be contributing to the stated intent of reducing the employment costs at Lazard by a total of more than $180 million per year and (ii) that I will not have to comply with the nondisparagement provisions contained in the agreement between Lazard and the "Historical Partners." I wish to congratulate the Head of Lazard for his success in selling the Lazard IPO to the investment public and to most (!) of Lazard's "Working Members." This will probably be judged in years to come not only as an even bolder act of financial wizardry than the sale of Wasserstein Perella, but also as a gesture of extraordinary altruism, since it was essentially done--from a cash point of view--for the benefit of the Historical Partners. I wish every success to the Lazard Working Members in their task of working down Lazard's mountain of debt and hopefully ultimately returning to a situation where the tangible book value attributable to their own (still indirect) interests in Lazard Ltd. will again be positive. Finally, let me say how gratifying it is, as the only direct descendant of the founding Lazard brothers currently employed in the Group, to sever ties with Lazard around the same time as my distant uncle Michel David-Weill who was the last family member (albeit not a direct descendant of the founding brothers) to run the firm.

  Other longtime Lazard employees were equally bitter about how the firm had been transformed during the first years of the twenty-first century. "It's obscene what's going on here," said Annik Percival, Michel's longtime assistant in New York. "It's a very sad end to things and very predictable. I could do a character assassination, but I assume others have already done that." Percival had also been Andre's assistant until his death. "When Andre Meyer died, it was, for me, the end of an era," she continued. "The end of a dynasty. And I think the same thing is happening here now."

  AFTERWORD

  On the morning of November 9, 2005, Lazard reported blowout earnings of $51.7 million, or fifty-two cents a share, above the Wall Street consensus estimates of thirty-seven cents a share. Revenues for the first nine months of 2005 were up 57 percent from the same period in 2004. By any measure, Lazard's business model was working magnificently--just as Bruce had predicted it would. In the press release accompanying the earnings report, Bruce took a well-deserved victory lap. "It is now clear that we are effectively executing our plan," he said. "The Lazard franchise is vibrant, our professionals are enthusiastic and the outlook for our business remains positive. Our clients continue to value independent advice and our global strategy positions us to continue to take advantage of the strong M&A environment." Lazard's stock price reacted positively to the news, rocketing up nearly 15 percent on the day and closing at $29.60 per share.

  Finally, after six months of Bruce being lambasted for mispricing the stock and for overengineering an immensely complex deal, the Lazard stock was now some 20 percent above the IPO price. As the mid-decade M&A boom continued, the stock hit its all-time high on December 6, 2006, of $49.28 per share, giving the firm a market capitalization of around $6 billion; Bruce's Lazard shares alone that day were worth some $560 million. This was less than a week after Lazard priced a $638 million secondary offering--at $45.42 per share--of its common stock, some $260 million of which went into the pockets of the Lazard partners, aside from Bruce, who chose not to sell any of his holdings. In 2005, Bruce also received total compensation from Lazard of $14.2 million, more than quadruple his $3 million in 2004, which made him--on a compensation-per-dollar-of-market-cap basis--the highest-paid CEO on Wall Street.

  But he continued to struggle to gain the admiration of his peers. His most notorious nickname--Bid-'Em-Up Bruce--derived from his reputation, in the late 1980s, of advising his clients to pay more than rival bidders for the companies they desired. Bruce was said to deliver the "Dare to Be Great" speech to clients before final bids were due, not unlike how Robert Duvall's character in Apocalypse Now played Wagner's "Ride of the Valkyries" before heading off into battle. Bruce hates the nickname, and in fairness, whatever its relevance twenty years ago, it is no longer germane today. Nowadays, people refer to Bruce as the "Wizard," as in The Wizard of Oz, and he is not shy about cultivating the image of an inaccessible and powerful genius.

  Bruce's Lazard is, ironically, a far more secretive and enigmatic place than it ever was under Michel, the Sun King. The fact that Lazard is now a public company merely exacerbates this irony, for even though its financial performance is disclosed publicly, Bruce is now free to hide further behind the curtain of secrecy under the guise of the requirements of the Sarbanes-Oxley Act. In contrast, Michel's door was always open to his partners--and pretty much to anyone else--and he would happily while away the hours talking to them about, among other things, art, women, and cigars. He believed he had few secrets from his partners; after all, the partnership agreement was revised and circulated every year with the new partnership points. True, not all the side deals were disclosed until Steve Rattner forced the issue, but even after their disclosure, many partners have said, the details of the side deals were not all that surprising. And despite cultivating an aura of secrecy, Michel regularly made himself available for lengthy on-the-record interviews with reporters (as did, to be sure, both Felix and Steve). Michel also prided himself on answering any question asked of him, whether from a partner, from the personnel, or from a reporter.

  Bruce, meanwhile, has made himself deliberately and tactically unavailable to the press. Not surprisingly, the tiny smattering of interviews he has condoned since coming to Lazard have been completely choreographed to put him in near-total control of the moment or have served a particular need. When the attention does not serve him, he can be ruthless. For instance, without bothering to inform the writer involved, Bruce refused in late 2005 to publish a finished manuscript Michel commissioned, and Lazard paid for, by the French writer Guy Rougemont about the histories of both the Lazard and the David-Weill families before World War II. Lazard had also paid a woman in Utah to translate the book into English so that it could be published in the United States and England. Michel, who had given Rougemont access to the Lazard archive, said he found Bruce's decision to be petty, especially since the history ended when Michel was still a child. "It hurt me a little," he said. "It shows an indication that he refuses the past of the firm, and for no good reason in my opinion." Nor, of course, has New York printed the words "Bruce Wasserstein" or "Lazard" once in its editorial pages since Bruce bought the magazine.

  Bruce has become both a powerful and a wealthy man. Thanks to the run-up in the Lazard stock price, he is unequivocally a billionaire, far wealthier than either Felix or Steve and on a par with Michel. No one on Wall Street has made more money from investment banking in the past decade than Bruce Wasserstein. In addition to a much-coveted independence and an even more heightened aura of inscrutability, his wealth has bought for him and Claude, and their two children together, an eleven-thousand-square-foot duplex "palace" that combines the tenth and eleventh floors of 927 Fifth Avenue, one of the finest and most exclusive limestone-clad apartment houses on Fifth. The small but extremely elegant 927 Fifth was built in 1917 and designed by Warren & Wetmore, the main architects of Grand Central Terminal. The twelve-story building, which also housed the
famous red-tailed hawk Pale Male and his family, has only ten apartments and the cooperative's board can be notoriously fickle about who is allowed in. Bruce bought the tenth floor in 1997 for $10.5 million, and for about another $15 million he bought the eleventh floor in 2001 from Richard Gilder just as Bruce "moved" to London to avoid paying New York City and New York state taxes on the $625 million in cash he received in the Allianz-Dresdner deal.

  Bruce also owns an apartment in London and one in Paris. The London apartment is a mere holding pen until he completes the renovation of the massive 38 Belgrave Square as his new home in that city. Belgrave Square, a few blocks from Buckingham Palace, is London's equivalent of Embassy Row, where countries such as Germany, Portugal, and Turkey have their embassies. The square surrounds a 4.5-acre private garden designed by George Basevi in 1826.

  Bruce also owns a large spread in Santa Barbara, California, and a twenty-six-acre Atlantic oceanfront estate--Cranberry Dune--on exclusive Further Lane in East Hampton, with a fourteen-thousand-square-foot home. He is said to have paid around $4 million for a house in 1984 and then knocked it down and, for another $4 million, built a new house, which, together with the land, is now said to be worth more than $75 million. Bruce's secluded house, with seven bedrooms, five fireplaces, a tennis court, and a pool, is his "favorite refuge," where he is said to conjure up ideas during long walks on the beach. In the summer, Claude and her neighbor Jessica Seinfeld--wife of Jerry--create Camp Seahorse on the beach for all of their young kids and others from the exclusive neighborhood. Camp counselors are hired--and put up for the summer--and an entire fantasyland is set up on the beach, complete with cabanas with refreshments, big umbrellas, and a huge heavy bag filled with beach toys to keep the kids busy. Naturally, Bruce shuttles between all of his expensive real estate and the twenty-nine Lazard offices worldwide by the private Gulfstream jet Lazard provides for him. He reimburses the firm for his personal use of the jet, although that amount is not made available publicly.

  There seemed to be a consensus forming in the spring of 2006, with the Lazard stock reaching all-time highs amid the robust M&A market globally, that Bruce may be finally, at fifty-eight, getting some of the respect he had long sought. "His belief in his own ability to sort of make it up as he goes along and his own personal power fuels him," said a close friend. "You know how envy fuels some people and jealousy. Insecurity fuels different people. His kind of belief in his own power, in his own myth, is, I really believe, what fuels him and his real belief that he's kind of an Ubermensch character." The corollary observation to Bruce the almighty, though, is Bruce the sower of the seeds of his own destruction. Along with some questionable business judgments, his Achilles' heel may turn out to be the one thing he seems reluctant to get control of: his own health. He pushes himself fairly hard, travels relentlessly, and rarely exercises. While he slimmed down in the early 1990s, he appeared in early 2006 to be chronically overweight. He is said to suffer from a heart condition, and a few years back had quadruple bypass heart surgery. In two interviews he gave in December 2005, he said he had just recovered from a bout of pneumonia and several of the flu. He was said to be out of the office, and ill, from February to May.

  The questions about Bruce's health reached a fever pitch in the summer of 2006, when numerous people around New York observed that he no longer looked well. In July 2006, someone who spoke with him at a New York restaurant described him as looking "frail" and "shaky" from having lost "so much weight" and wearing a suit that was "multiple sizes too big." Another person who saw him that same evening said that he looked like a "sickly seventy-year-old" instead of the once-invincible conqueror, and added, "He is in bad shape." Felix and his wife saw Bruce at an East Side brasserie and remarked to themselves that he looked terrible. Felix had heard that Bruce had been out of the office for several months in the spring of 2006 and wondered why Lazard did not disclose that fact to the market. The Financial Times asked Steve Golub point blank about Bruce's health on August 2, 2006, after Lazard reported second-quarter earnings. "He's fine," Golub said of Bruce.

  Indeed, in an "exclusive" November 6 BusinessWeek cover story about how Bruce successfully "seized control of Lazard" and was busy "remaking the granddaddy of M&A," he looked thinner, heavily made-up, and posed in his Savile Row suit. Asked about the rumors that he was "gravely ill," he told the reporter Anthony Bianco, "It's just silly" and added, "I'm exactly the same weight I was ten years ago. I go through these cycles. I am trying to be fit." Moments later, Bianco reported that Bruce was enjoying "an elaborate coffee-and-ice-cream concoction" he supposedly needed to "fortify" himself "for my first press interview." A few weeks later, the press noted that Bruce was enjoying a huge steak at Peter Luger's in Brooklyn. Sadly, though, the fates have not been kind to his generation of Wasserstein siblings. His sister Sandra died in her prime at the age of sixty, in 1997, after a long struggle with breast cancer. Equally tragic, after a secret and valiant battle with lymphoma, his younger sister, Wendy, the famous playwright, died on January 30, 2006. She was only fifty-five. Lucy Jane, Wendy's young daughter, who was born in 1999 with the help of fertility treatments and raised by Wendy alone, now lives with Bruce and his family at 927 Fifth Avenue.

  THE BEGRUDGING ACCOLADES for Bruce keep coming despite the valid criticism he received in some circles for agreeing to represent, in late November 2005, the billionaire corporate raider Carl Icahn and a group of dissident Time Warner shareholders--who together owned some 3.3 percent of the company--in their very public battle to try to boost Time Warner's long-beleaguered stock price by either pushing out the CEO, Dick Parsons, or breaking up the company, or both. Lazard was hired to analyze various strategic alternatives, find a slate of candidates to run as replacement board members at Time Warner, and make recommendations to Icahn and his group. Atypically, Lazard's recommendations would be made public as part of the campaign. The firm's fee for the assignment was $5 million initially, plus another $6.5 million for each dollar the Time Warner stock moved above $18 per share during the following eighteen months.

  The assignment was full of irony, of course, for not only had Bruce, when he was at Wasserstein Perella, been the architect, representing Time Inc., of the controversial 1989 deal creating the highly leveraged Tim Warner, but Bruce had also trumpeted his involvement in the landmark AOL acquisition of Time Warner in 2000 despite having had no role in the deal. When it suited Bruce and improved Wasserstein Perella's rankings in the M&A league tables--for instance, on the eve of the sale of his firm to the Germans--he claimed credit for the largest U.S. merger of all time. When it no longer suited him--for instance, when the deal proved to be an embarrassing disaster--Bruce ran, metaphorically, like the wind.

  Indeed, many blame both the original Time-Warner merger and the ill-fated AOL-Time Warner merger for creating the situation the dissident shareholders--and now Bruce and Lazard--were fighting to improve. Some believed Bruce took the Icahn assignment because he had grown frustrated by not being hired by Time Warner for any assignment since the AOL deal. "He just wants to be in the center of the action," Parsons said of him. Was it really possible that Bruce had so little shame that he could, in good conscience, represent Icahn in deconstructing the very company he once supposedly took great pride in helping to create? Was there nothing he wouldn't do for a fee? "He leads his whole life in an immoral way," said someone who knows him well. "In the Time Warner deal and in his relationships with women and people. He's fundamentally dishonest, and he lies with greater conviction than he tells the truth. He does. He does. I've seen it. That's when he's trying. And he brings to bear all his wits and focus, and he's damn good at it."

  Through the end of 2005, while Bruce was busy mounting a self-serving publicity campaign on Icahn's behalf, his team of Lazard bankers worked virtually nonstop for two months--including through the Christmas and New Year's holidays--crunching the Time Warner numbers, analyzing the company's business lines, and drafting a narrative to fit the preordained conclusion t
hat Time Warner's stock was desperately undervalued and the company needed to be broken up in order for the stock price to rise. A centerpiece of the Icahn strategy was to mount a proxy fight at the annual meeting in May 2006 and to elect a new, Icahncentric slate of directors. If elected, the new directors would be in a position to implement the changes Lazard recommended. A search firm was hired to find candidates to stand for election to the Time Warner board and also to find someone to serve as the chairman and CEO of the company to implement the changes Icahn and Bruce recommended. A Web site was also created, EnhanceTimeWarner.com, to publicize the dissidents' every move. But it was very slow going finding candidates for the dissident slate and for the position of CEO. Frank Biondi, a former Hollywood CEO at both Viacom and Time Warner's HBO, and the brother of Bruce's partner Mike, eventually agreed to take the slot. The $6 million he was paid, regardless of whether the proxy fight succeeded (and more if it did succeed), didn't hurt in his decision-making process. Nevertheless, the betting was still running against the Icahn group. More important, Icahn was not getting much, if any, additional support from the fast-money hedge fund crowd that he needed to join his bandwagon if he were to be successful in forming a big enough bloc of Time Warner shareholders to leave Parsons little choice but to accede to their demands. To many of these investors, Time Warner was simply a slow-growth, stodgy "old media" giant unlikely to provide them with the desired return.

  The stage was now set for the long-anticipated unveiling of "The Lazard Report," the firm's 343-page tome of analysis and recommendations about how Time Warner should proceed if it wanted to increase its stock price. As theater, the ballyhooed February 7 press conference in the penthouse of the luxurious St. Regis Hotel could not have been any more dramatic had it been a few blocks west, on Broadway. It was being streamed live over the Internet. Large projection screens flanked a dais at the front of the room, where Bruce, Icahn, and Biondi presented the report's conclusions before an overflowing crowd of some five hundred bankers, analysts, investors, and reporters. The report, dated February 1, had been embargoed until the meeting got under way, when Bruce's troops distributed it around the room, providing little opportunity for a substantive review before the show began. The highly anticipated document featured high production values, including a glossy white cover emblazoned with the words "Time Warner Inc." and "The Lazard Report" in large black type. Subtle it was not.