The End Game at Lazard


By Emily Thornton and John Rossant Bruce Wasserstein has always been a shrewd negotiator. The Wall Street legend built his career out of making big deals happen. Whether he was advising Kohlberg Kravis Roberts on its $30 billion purchase of RJR Nabisco in 1989 or selling his own firm to Dresdner Bank for $1.4 billion in 2000 and pocketing hundreds of millions, Wasserstein always came out on top.

Now, Wasserstein is at it again. As head of one of the world's last prestigious investment banks still in private hands, Lazard, he has asked Goldman Sachs (GS) to take Lazard public. Meantime, he has talked for months to Lehman Brothers (LEH) and other banks about buying Lazard, say sources close to the discussions. Through a Lazard spokesman, Wasserstein declined to comment.

HIGH PRICE. Pulling off a deal for Lazard will be one of Wasserstein's trickiest feats yet. Before he can move, he needs the nod from Chairman Michel David-Weill, 71, scion of the firm's founding family. Wasserstein, 56, has been at loggerheads with David-Weill practically ever since the chairman hired him to run Lazard in 2001. Worse, the firm's opaque accounting and labyrinthine share structure are scaring off some potential buyers while driving down Lazard's price.

BusinessWeek has learned that David-Weill is considering permitting an initial public offering to happen, but only if Wasserstein buys him out first -- and at a handsome price. David-Weill wants to get roughly the same valuation for his shares as British publishing conglomerate Pearson (PSO) received when it sold its 18% stake in Lazard for $724 million in 1999 -- valuing the firm at $4 billion. Lazard's other nonworking partners, such as investment company Eurazeo, want the same deal.

Together, they own 36% of Lazard and have six of its 11 board seats. If Wasserstein doesn't play ball, they would use their six votes against Wasserstein, who can muster five, and block any IPO. "If Michel gets the money, he'll go," says a senior working partner. "But he's asking what is not a reasonable price." David-Weill declined to comment.

JUST THE START. The dollar signs dancing in Wasserstein's head are even bigger. He thinks Lazard should be priced at $6 billion overall in an IPO or sale, according to people who have spoken with him. Bankers say $3 billion is more realistic. They believe Lazard has lost money since Wasserstein started doling out multimillion-dollar contracts to hire dozens of hotshot bankers.

Wasserstein said he needed to reinvest in the firm for two years to turn it around. Also, the IPO market looks rocky since boutique investment bank Greenhill made a big splash going public in May.

David-Weill can kick Wasserstein out in 2006, when his contract ends. But if Wasserstein takes the firm public before then and buys out its partners, he'll basically control it. "This is a high-stakes, three-dimensional chess game being played between these two men," says William D. Cohan, a former Lazard banker who is writing a book.

COBWEBS. Even if Wasserstein agrees to David-Weill's terms, he still has a lot of work to do. For starters, he needs to clarify the firm's accounting. Wasserstein maintains, and Lazard reported, that it earned $249 million in 2003. David-Weill complains it lost $150 million. The difference is likely that Wasserstein doesn't include partners' "distributions," which are primarily compensation, in his calculation. But it's hard to be sure: Lazard doesn't disclose how much it pays its partners.

Wasserstein also has to clear corporate cobwebs spun during Lazard's 156-year history. For example, the firm has a complex structure that pays limited, working, and nonworking partners differing shares of profits. Still, it's way too early to bet against Bid 'Em Up Bruce. Only the hole cards have been dealt so far -- and the flop is sure to bring some big surprises. Thornton is BusinessWeek's Investment Banking editor in New York. Rossant is an editor in BusinessWeek's Paris bureau


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