Robert Lenzner, Contributor

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9/04/2000 @ 2!00"#
Assault on the House of Lazard
FRIENDS AND ENEMIES DISAGREE about which anecdote best captures
the arrogance of Michel Daid!"eill# chair$an and chief e%ecutie of
Lazard LL& and the fourth!generation scion to rule one of the world's
richest priate financial e$pires( So$e sa) it was in *++,# at a $eeting of
the powerful partners who run Lazard's $an)!tentacled operations# when
he pointed at each in turn and declared- .I don't need you( I don't need you(
I don't needyou/and I don't need you(0
1thers sa) it was at the fir$'s *23th anniersar) celebration that )ear# when
Daid!"eill ungraciousl) failed to than4 5eli% Rohat)n and Antoine
6ernhei$ for their roles in building Lazard and enriching Daid!"eill
hi$self(
7hen there was the recent $eeting with a big institutional inestor that
holds sta4es in Lazard entities and co$plains of shabb) treat$ent( Daid!
"eill drew on a big cigar and blew s$o4e in the faces of his isitors for half
an hour# declaring he had no interest in the concept of $inorit)!shareholder
rights(
7a4e )our pic4( 5or 89 )ears Michel Daid!"eill has run Lazard# its 8#:23
e$plo)ees and its $)sterious lab)rinth of interloc4ing inest$ents# as if
the) were his priate fiefdo$( He has been obsessed with $aintaining
control# structuring holdings to insulate his power( He loses longti$e allies
rather than share power with the$/star deal$a4er Steen Rattner# een his
own son!in!law Edouard Stern(
;et for all the $aneuering# Michel Daid!"eill's control oer Lazard is
threatened( 1er the )ears he has alienated legions of partners and
inestors( Now an outside proocateur# 5rench industrialist <incent 6ollor
hopes to tap the antipath) as he pushes to brea4 up the Lazard e$pire and
sell the parts to the highest bidder(
6ollor sa)s Lazard can't surie in a world do$inated b) titans li4e
Gold$an Sachs and Morgan Stanle)( He sa)s Daid!"eill is $ired in the
past( .He's loc4ed in his character and his legend#0 6ollor sa)s( .His group
$a) hae proble$s to sole in the future(0
5ar $ore than the House of Lazard is at ris4 in this battle of the rich( Assets
worth =*8 billion are controlled b) four 5rench fa$ilies- Daid!"eill's#
whose holdings date bac4 to the $id!*,33s# and the fa$ilies of three
partners who >oined the fir$ in the earl) and $id!83th centur)/Antoine
6ernhei$'s# Andr Me)er's and ?ean Gu)ot's(
7he Lazard fir$ itself is worth perhaps =2 billion( 1ther holdings include =*
billion of pri$e real estate in L)on and Marseille@ a =* billion sta4e in
Generali# an Italian insurance co$pan)@ and a =*(8 billion piece of the
Danone food and beerage co$pan)( 7he Lazard na$e alone is worth a lot@
the fir$ has adised states$en# billionaires and blue!chip corporations(
Recent $ergers on its scorecard- "arner!La$bert and Afizer# Seagra$ and
<iendi# Saatchi B Saatchi and Aublicis( Lazard is the world's largest
re$aining priate inest$ent ban4 and holds =C33 $illion of capital(
It is Duite a fight- 6ollor# E,# the fierce# self!$ade deal$a4er who asse$bled
a portfolio in shipping# $anufacturing and tobacco with co$bined sales of
=9(2 billion# ersus Daid!"eill# *+ )ears older# the supercilious aristocrat
who professes to be unconcerned b) this arriiste(
6ollor has brashl) asse$bled a 9*F sta4e in Rue I$priale de L)on# which
indirectl) controls *:(EF of Lazard( 6ollor's piece of Rue I$priale is al$ost
twice the size of Daid!"eill's sta4e( It cost hi$ =923 $illion( Daid!"eill#
howeer# has the reins in hand- "ith his allies# he controls C*(CF of the
otes in Rue I$priale( 7he assets are laid out in a hone)co$b of cross!
ownerships# holding co$panies and indirect sta4es Gsee chartH( It is b) this
$eans that Daid!"eill# with a net worth that we esti$ate at =8(8 billion#
has controlled businesses worth fie ti$es as $uch(
6) itself 6ollor's $inorit) sta4e in one of these holding co$panies does not
threaten Daid!"eill( 6ut there are other crac4s in the e$pire# and the
outsider hopes to e%ploit the$( 7he inest$ent ban4ing business is
boo$ing# but Lazard isn't getting its share( In the global!$erger adice
business# Lazard's share is down b) al$ost half in two )ears# to :F toda)( In
the I(S( it ran4s *9th in adising acDuirers and *Cth in defending targets
through the first si% $onths of 8333@ ten )ears ago# it ran4ed Eth in both
categories(
7he fir$ still stings fro$ =*33 $illion in fines# legal and other costs to
settle charges of illegal profit!s4i$$ing in $unicipal bonds in the earl)
*++3s( A Lazard fund foolishl) inested in oeralued retire$ent
co$$unities and saw the fund's assets decline b) =933 $illion(
All of this happened on Daid!"eill's watch( 6ut he sa)s these proble$s
don't $atter because the fir$ is thriing- It clai$s to hae =E33 billion in
pending deals# and preta% profit could hit =C33 $illion this )ear Gflat with
*++,H(
.7he big fir$s can't change because the) are based on fragile $ar4ets and
e%cessie pa)chec4s( 7he onl) satisfaction the) gie is $one)#0 he sa)s( ."e
can do an)thing we want because we are s$all and not at the $erc) of the
$ar4ets(0
Daid!"eill dis$isses 6ollor as an opportunist# but he $a) be
underesti$ating his adersar)( 6ollor is counting on a cast of resentful
characters to help sha4e up Lazard( His personal financial adiser is :C!
)ear!old Antoine 6ernhei$# a retired partner and the patriarch of one of the
four controlling fa$ilies atop the Lazard e$pire(
Intil now 6ernhei$ has sided with Daid!"eill# but his lo)alt) $a) be
waering( He is said to hae felt slighted at the *23th anniersar) dinner#
and 6ollor $a) be able to e%ploit the si$$ering resent$ent( GDaid!"eill
dis$isses 6ernhei$'s feelings about the dinner as growing sensitiit) in his
old age(H 6ollor also has a potential all) in I6S "arburg# one of the world's
largest inest$ent ban4s( It owns pieces of three Lazard co$panies and
co$plains that Daid!"eill has disregarded its interests and the interests of
other shareholders( So far Daid!"eill has turned a deaf ear to such
co$plaints(
.He was unhelpful and incredibl) arrogant#0 sa)s an institutional inestor
who recentl) $et with Daid!"eill( .He lit up a hu$ongous cigar and
puffed it in our faces for half an hour( He reall) dis$issed us as totall)
uni$portant J and we had been large shareholders in his co$panies for
)ears(0
7he Lazard chief faces challenges een in his own ran4s( At Lazard's $one)!
$anage$ent diision# which handles =:2 billion in client assets and throws
off $ore than =*33 $illion in annual profit# lead partners Nor$an Eig#
Herbert GullDuist and others are restless( As shareholders in a spun!off
portfolio $anage$ent fir$# the) would hae an eDuit) sta4e in their results(
Daid!"eill shows no sense of urgenc) about his proble$s# which has led
people to see hi$ as isolated# a casualt) of his own high!handedness(
6ehind his bac4# the) call hi$ the Sun King/after Louis LI<# whose
absolute $onarch) lasted for :8 )ears(
.1b>ectiel)# Michel is the landowner and eer)one else is a tenant far$er(
7he) get rich# but the)'re still tenant far$ers#0 sa)s ?ean!&laude Haas# a
senior partner in Aaris( GHaas hastens to add that Daid!"eill has neer
acted or tal4ed that wa)(H
Daid!"eill 4nows how to lie ro)all)( In New ;or4 he owns a 5ifth Aenue
apart$ent that once belonged to &6S founder "illia$ Aale)( His wee4end
estate is a chteau on the North Shore of Long Island( In 5rance he lies in an
*,th!centur) house in Aaris and has a illa at &ap d'Antibes# where he ta4es
$uch of the su$$er off(
He gies generousl) to charit)# building churches for the Me%ican
co$$unit) in &alifornia and funding art $useu$s in the I(S(# 5rance and
6ritain( He has a sharp e)e for art# rel)ing on his own e%pertise to inest in
Renaissance paintings# old $asters and $edieal objets dart(
All that oerhead reDuires a stead) inco$e# and each )ear Daid!"eill and
his wife# four children and sister ta4e out about =*33 $illion# 83F of
Lazard's *+++ profits( 7his is $ore than 23 ti$es what a >unior partner
receies(
;et in a fir$ fa$ous for 4iller deal$a4ers of decades past/the ruthless
Andr Me)er in the *+23s to the *+:3s@ the states$anli4e 5eli% Rohat)n in
the *+:3s and *+,3s@ and Stee Rattner# along with a nu$ber of other
senior ban4ers# in the frenzied *++3s/Daid!"eill has neer been 4nown
for his MBA wor4( He ca$e to his loft) position the old!fashioned wa)-
inheritance( He then built up the fa$il) business with heft) pa) for his
hired guns# influential contacts in goern$ent and a politician's abilit) to
naigate a$ong Lazard's three autono$ous offices in New ;or4# Aaris and
London(
7he Lazard lineage goes bac4 a centur) and a half( In the *,E3s two
5rench$en# Ale%ander and Si$on Lazard Gthe frres in Lazard 5rresH# left
Alsace!Lorraine for New 1rleans# where the) put a fortune/=+#333/into a
dr)!goods store( It burned down# and in *,E+ the brothers $oed to San
5rancisco to ride the gold rush( 7he) set up a gold!e%port fir$ and brought
in a cousin as their boo44eeper- Ale%ander "eill# Michel's great!
grandfather( 6) *,:3 the Lazards had offices in three countries( Li4e the
Rothschilds# the) began to deal in foreign e%change(
Ale%ander's son# Daid "eill# was na$ed a partner in *+33 and beca$e a
fa$ous 5rench financier and philanthropist( 7o celebrate his pro$inence
he changed his na$e( Daid "eill was now Daid Daid!"eill Gpronounced
.dah!eed!<A;0H(
Daid's son Aierre beca$e a senior partner at Lazard# as well# in *+8:(
Aierre spent $ost of "orld "ar II in New ;or4# separated fro$ his wife and
children( ;oung Michel# his sister Eliane and his $other# unable to obtain
I(S( isas# hid fro$ the Nazis in a s$all 5rench illage during the war#
liing under assu$ed na$es( Michel's half!brother died in a concentration
ca$p(
Michel's grandfather died in *+28@ his father# in *+:2( 7oda) Michel Daid!
"eill sa)s he has no close personal friends( .If he had two friends# the) were
his father and his grandfather#0 Aaris partner Hubert Heilbronn sa)s( .He
was close to the$# he idolizes the$(0
Michel >oined Lazard 5rres in *+2C# at age 8E# after graduating fro$ the
L)ce 5ranais in New ;or4 and the Institut des Sciences AolitiDues in Aaris(
He too4 fie )ears to beco$e a New ;or4 partner@ b) then Andr Me)er had
built Lazard into a force al$ost as potent as Gold$an and Morgan Stanle)(
Me)er grew ill in *+::# but his heir apparent/5eli% Rohat)n/didn't want the
>ob( So Daid!"eill too4 it@ he was E2(
Daid!"eill and Rohat)n wor4ed together for the ne%t 83 )ears( Michel
calls it .a $arriage(0 Ma)be it was a $arriage of conenience( Rohat)n ran
ban4ing and won renown for handling acDuisitions for Inited 7echnologies#
I77# "arner &o$$unications and R&A( Daid!"eill controlled the $one)(
He decided who $ade partner and set co$pensation/and 4ept it secret( .I
had the freedo$ of not being in the li$elight#0 he sa)s(
6ut when Rohat)n left in *++: to beco$e the I(S( a$bassador to 5rance#
Daid!"eill lost the elet gloe to his iron fist( He had alread) brought in
his brilliant but abrasie son!in!law# Edouard Stern# as a potential
successor# but Stern clashed with Daid!"eill and other partners( 7he son!
in!law left the fir$ in *++: and accused Daid!"eill of reneging on his
seerance pac4age( Stern drafted Gbut neer filedH a nast) lawsuit and
wal4ed awa) with $illions(
Daid!"eill turned to Stee Rattner to help hi$ run Lazard# but the) later
tussled oer issues of structure# $anage$ent and power( "hile discussing
how to $erge the New ;or4# Aaris and London houses# Daid!"eill was
oerl) concerned with not di$inishing his role or appearing to do so( 5or
e%a$ple# when Rattner suggested his new title be president of Lazard 5rres
in New ;or4# Daid!"eill said- .;ou can't hae the title of president( All $)
friends will thin4 I'e retired(0
7he fir$'s star ban4er too4 the title of deput) chief e%ecutie and set out
$a4ing fi%es that# in essence# threatened to undercut Daid!"eill's control(
He threw out Daid!"eill's secret co$pensation arrange$ents and
published eer) partner's ta4e at the end of the )ear(
Another tension point between Daid!"eill and the New ;or4 partners- the
heft) *2F profit cut that Daid!"eill too4 fro$ the New ;or4 unit# which
accounts for C3F of fir$ earnings( 5eli% Rohat)n# who had built the I(S(
franchise# too4 onl) 2F( 1n this point Rattner and the partners won- Daid!
"eill agreed to cut his portion fro$ *2F to *3F# still prett) rich( 6ut $ostl)
Daid!"eill resisted Rattner's changes( 5ed up# Rattner Duit last 5ebruar)
to set up his own priate eDuit) fir$# Muadrangle Group( He too4 three
Lazard partners with hi$( Since *++: + of ** senior ban4ers with large
eDuit) sta4es hae left Lazard in New ;or4# as well as the senior rain!$a4er
in London( 7he C:!)ear!old Daid!"eill's ta4e on the defections- .1nce
)ou're no longer the future# people begin >oc4e)ing for position to be the
future#0 he sa)s( .Instead of getting along# the) e%clude each other(0
Into this dissension ca$e <incent 6ollor( He began bu)ing shares in Rue
I$priale earl) last su$$er# pa)ing the eDuialent of =:33 a share@ the) sell
at =*#+23 toda) and hae a boo4 alue of =8#+33# 6ollor sa)s( Daid!"eill
beca$e furious( He inited the raider to his illa on the Mediterranean(
.;ou hae $ade a bad inest$ent( ;ou should sell bac4 the shares#0 he
scolded# as 6ollor recalls it( 6ollor returned to Aaris and raised his sta4e in
Rue I$priale to 9*F oer the past )ear(
Daid!"eill countered b) adding ten )ears to a oting agree$ent between
hi$ and the chief partners in a holding co$pan)# Hauss$ann Aercier# that
represents the interests of the four fa$ilies controlling Lazard( A$ong
those going along- Antoine 6ernhei$# Lazard partner and 6ollor's $entor(
Apparentl) he isn't read) to betra) the Lazard chair$an >ust )et(
6ollor is undeterred( .I'$ not i$pressed b) agree$ents( ;ou can brea4 an
agree$ent#0 he sa)s( He recentl) reached out to 6ernhei$# agreeing to let
6ernhei$ ote 6ollor's sta4e in Rue I$priale for one )ear( 7hat won't stop
6ollor# howeer# fro$ bu)ing still $ore shares of Rue I$priale/and that is
what he plans to do(
7hree other holding co$panies in the Lazard p)ra$id are publicl) traded
and the)# too# proide a tinderbo% for dissent( A co$$on thread- depressed
share prices# reflecting the fact that profits tend to be reinested elsewhere
in the p)ra$id rather than be paid out as diidends( .7he e$pire is not
being ruled >ustl) and fairl)#0 sa)s law)er Sophie L'Helias# who represents
clients with $inorit) interests in Lazard properties( .Daid!"eill and his
hench$en use holding co$panies to enrich the partners of Lazard at the
e%pense of the shareholders(0
I6S "arburg owns parts of three Lazard ehicles- I$$obilire Marseillaise#
which holds real estate and a sta4e in Eurafrance@ Eurafrance# which has
insurance holdings and a sta4e in Azeo@ and Azeo# which holds inest$ent
partnerships and a sta4e in Lazard( 7he three trade at discounts of as $uch
as 2+F to liDuidating alue( I6S"arburg hopes to force a $erger of the
three fir$s or# failing that# significant share bu)bac4s(
."e hae a $ission# so$e $ight sa)# to see all of the ano$alies )ou hae in
Europe >ust disappear# with shareholders getting a fair price#0 sa)s ?on A(
"ood# a $anaging director in I6S "arburg's eDuities diision( 7he need
for Lazard's shell!ga$e structure will disappear when European stoc4
$ar4ets .grow up0 and get .grown!up rules#0 he sa)s(
"ood sa)s 6ollor is .a er) interesting character# and he certainl) supports
the concept behind what we're tr)ing to do(0 7he) hae been in touch(
In ?une I6S"arburg reDuested that Azeo open its boo4s to facilitate an
outside bid for the co$pan)( At the Eurafrance shareholder $eeting slated
for Dece$ber# I6S "arburg will agitate for a narrowing of that co$pan)'s
discount(
Daid!"eill will be read)( He is also Eurafrance's chair$an# and late last
)ear he i$posed another obstacle# this one a poison!pill!li4e sche$e to
thwart an) unwanted ta4eoer of Eurafrance(
Inside Lazard# no one is directl) challenging Daid!"eill's rule# but he
wor4s oerti$e to tighten his grip( 7his )ear he $erged Lazard's Aaris# New
;or4 and London units# gaining $ore direct control oer those businesses(
He for$ed a new seen!$e$ber e%ecutie co$$ittee# with hi$self as
chair$an# three New ;or4 partners# one fro$ London# one $ore fro$ Aaris
and one representing the rest of Europe(
6ut he went a step further( During the $erger he won an understanding
with his top partners that he will not hae to na$e a nu$ber two $an at the
fir$ for fie )ears# and that he can re$ain chair$an for the rest of his life(
7o insure these edicts co$e to pass# Daid!"eill for$ed a ten!$e$ber
superco$$ittee(
It has neer been disclosed outside the fir$ that the e%ecutie co$$ittee
reports to this superco$$ittee# also chaired b) Daid!"eill( Daid!"eill
has a seen!ote coalition on the superco$$ittee fro$ representaties of
Lazard 5rres in Aaris# Azeo and Eurafrance# all lo)al to hi$( In effect#
Daid!"eill reports to hi$self(
"hat does 6ollor reall) wantN He could sell out his position in Rue I$priale
and poc4et handso$e profits( 6ut he insists he has a $ore radical end in
$ind for Lazard- 6rea4 it up(
Michel Daid!"eill has no such drastic plans( He hopes to entice 5eli%
Rohat)n# :8# to re>oin the fir$ after his a$bassadorship ends in 5rance# but
Rohat)n is reluctant to do so(
"hat about )ounger talentN Stoc4 options would lure the$/if Lazard were
publicl) traded# and better still if its corporate structure were clearl) ai$ed
at $a%i$izing shareholder alue( 7hat would call for consolidating the
inest$ent ban4 with its affiliates and issuing stoc4( 6ut Daid!"eill
opposes going public and sa)s onl)# ."e $a) hae to change our $eans of
co$pensation( Aa) in $one) and also in hope(0
&an a big inest$ent ban4 in this da) and age sta) priate and conoluted
in structure and still 4eep growingN .M) onl) wish for the fir$ is to surie
and prosper#0 sa)s the chair$an( .It's an opportunit) for our partners to be
independent and not a cog in a $achine(0
IndependentN 1f who$N 7he Sun King's reign is teetering( <incent 6ollor
$a) )et hae his da)(