Will Lazard Make It? Wasserstein Choice Stirs Big Questions

When the French grand bourgeois and senior Lazard-Frères partner and chairman Michel David-Weill anointed Bruce Wasserstein on Nov. 15 as his successor to lead Wall Street’s last major partnership, the appointment resonated in two ways. First, it marked the end of Mr. Wasserstein’s 24-year run as an establishment-flouting deal maker. Second, for Mr. David-Weill, it was a blunt acknowledgment that the old-world European way of doing business on the Street-the dispensing of sage, refined counsel by sage and refined bankers-was finished.

It also raised the question of Lazard’s survival as a 152-year advice-giving house. The Rattners and the Rohatyns (Steve and Felix, Lazard legends both), keepers of that suave little flame, have fled, replaced by a slew of perfectly capable, if not decidedly middle-brow and anonymous bankers. They are more than willing to offer advice. But who’s asking?

Mr. David-Weill wasn’t admitting it, but, stripped of its great men, Lazard had become irrelevant. In the boomtown economy and its aftermath, it was volume and heft, not cachet and European charm, that got business done.

So the 69-year-old Mr. David-Weill (or ” Daveed-Vay ,” as they refer to him in the Seventh Arrondissement), went in search of a slugger. Time-traveling back to the 1980’s, he cast his lot with the biggest macher he could find, Mr. Wasserstein, who he hopes will be more Barry Bonds than Jose Canseco.

Lazard declined to make Mr. David-Weill or Mr. Wasserstein available for comment.

The situation at Lazard is indeed dire. The infighting among partners in Rockefeller Center, London and Paris had grown all the more internecine, and the firm’s plunge in the mergers-and-acquisitions tables had become precipitous. The Morgan Stanleys and Goldman Sachses, to say nothing of the new banking leviathans like Citigroup and J.P. Morgan Chase, with their hordes of advice-giving bankers and heaps of capital, were quite simply eating Lazard’s lunch.

The 53-year-old, Brooklyn-born Mr. Wasserstein would be the perfect counterpoint to the haughty, reserved Mr. David-Weill, who had inherited his partnership from his father-who had inherited it from his own grandfather, a cousin to the founding Lazard brothers. Mr. David-Weill became chairman in 1977 and, since then, has done little more to justify his and his family’s annual $100 million cash take than play a masterful hand of court politics.

Mr. Wasserstein, who will formally take the reins in January, is already making appearances in the London and New York offices, declaiming that the age of politics is over and that now it’s all about clients, clients, clients. He is surely harking back to a more halcyon time for Lazard in the early 1990’s, when the one-two punch of Felix Rohatyn and his shiny young protégé, Steven Rattner, reeled in all the big media deals: ITT and Warner Communications for Mr. Rohatyn; Viacom-Paramount, AT&T and Comcast for Mr. Rattner.

Debonair, worldly, multi-lingual, with their uptown salons, Democratic politics and civic and artistic zeal, the two were a zesty antidote to the greed-is-good 1980’s-era banker that, ironically enough, Mr. Wasserstein himself came to symbolize. Yes, they were ambitious and tough, but in a fine European way that hid the rougher edges of their swagger. It was banking with a certain style and politesse, a mystique which just happened to conjure up multimillions for the firm and all who dipped into its magic hat.

Now they and their ilk are gone, fed up with the Byzantine Lazard structure and the waning influence of a once-storied name. Which leaves Mr. Wasserstein, the original in-your-face M&A banker, ready to leverage that Continental sensibility once again.

Can he do it? The 1980’s are but a memory, and Mr. Wasserstein has burned a few bridges along the way. He’s also spent the last few years aspiring to be Steven Brill, reporter of the big deals ( The Daily Deal) , a diversion from deal making itself. And he’s missing his old partner, the smoother Joe Perella, who helped Mr. Wasserstein achieve his greatest glories (Mr. Perella is now at Morgan Stanley).

Most important, what he most needs is what Lazard now sorely lacks: star bankers.

“The problem with Lazard is that it has always had a great-man strategy,” says Kim Fennebresque, the president of SG Cowen Securities and himself a former First Boston and Lazard banker. “Because they don’t offer capital; what they really offer is the advice of great men. They have always had an extraordinary stable of such men. With Felix at the top, Steve Rattner, Ken Wilson [now at Goldman Sachs], Ira Harris [now a banker for the Pritzker group in Chicago]-the list goes on and on. They have been able to sell themselves and their position in the commercial world, as well as the quality of their advice. When you lose all the great men, it becomes a problem.”

So out comes the Rolodex, and it is quite the legendary one; Jerry Levin, Mel Karmazin and Sandy Weill will surely return his calls. And if his magic touch returns, some Lazard veterans suggest that Mr. Wasserstein and Mr. David-Weill may well agree to sell Lazard off. It’s always been bid-‘em-up Bruce’s greatest talent-knowing when the top has arrived, and then selling out. He has gotten his clients to do it, and most famously he has done it himself, when he sold his rump Wasserstein Perella banking boutique in September 2000 to the Germans at Dresdner Bank for $1.37 billion. His personal take: $600 million–plus.

Periodically, over the past five years, a number of suitors have flirted with buying Lazard, including Deutsche Bank, HSBC and most recently Lehman Brothers. But Mr. David-Weill, prideful of his position as the emperor of his small fief, would never sell out-much to the consternation of his partners, many of whom were eager to cash in their chips.

Now, with the brain drain of top talent continuing-Mr. Rattner took three partners with him when he quit in February 2000, and many others have decamped to the larger firms in recent months-and Lazard’s standing in the market eroding, some observers are saying that bringing in Mr. Wasserstein is window-dressing before Mr. David-Weill makes his final sale.

“Hiring Wasserstein was a short-term solution,” says a rival banker. “What Lazard really needs is a partner. It needs to be bought by, merged into or teamed up with someone else. And that company is likely to be Crédit Agricole.”

Quelle horreur , all the old-school Lazard partners must be shuddering. The sprawling French banking group owns a large indirect stake in Lazard-Frères, and as it prepares to go public, is flirting with the idea of grafting Lazard onto itself to lend a bit of panache to its stolid, unexciting base. But for such a storied banking franchise to be even considering selling out to a bank that caters to French farmers-well, it seems just a bit déclassé. Which is why Mr. David-Weill so desperately needs Mr. Wasserstein to refill Lazard’s fortunes.

Smart Guy

From Day 1 in 1977, when the then-29-year-old Mr. Wasserstein was hired by Joe Perella as a junior mergers-and-acquisitions banker at First Boston, he has used his brains and his bluster to cock a snook at the traditions and mores of old-line Wall Street banking. From the early days, he has always been the smartest guy in the room (he entered Harvard Law School at the age of 19, and graduated both the law school and Harvard Business School, where he was a Baker Scholar, according to the back cover of his book, Big Deal )-and he has never been shy in letting his peers in on the secret.

Whether it was his stiff, old-line bosses at First Boston in the 1970’s and 80’s, or the deal-making competition at Morgan Stanley and Goldman Sachs in the 1980’s and 1990’s, when he and his partner formed Wasserstein Perella, Mr. Wasserstein has always been a boardroom interloper, a deal-making arriviste.

Mr. Wasserstein was the prototypical 1980’s deal maker, a super-achiever who sold advice and counsel not on the basis of club ties and business relationships, but on something more powerful and intoxicating: an ability to inflate not only the self-worth of his clients, but the price that they would pay to close the deal. You need this deal, you need me and you need to pay the price if you truly want to be a global player, he would say.

To be sure, it was not the Rohatyn or Rattner style of advice-giving. But whether it was Robert Campeau (who bid on Federated stores), Jerry Levin (who bid on Warner Communications) or Ross Johnson (who most famously bid on RJR Nabisco) looking across the table at this brassy, frumpy Brooklyn guy with his glasses, bad suits and steel-trap mind, that client inevitably thought, Yeah, Bruce is right, this is my time to shoot for the stars . So they would mainline junk-bond debt and make their play, paying Mr. Wasserstein hundreds of millions in fees for the benefit of his wisdom.

While fellow 1980’s legends Mike Milken and Ivan Boesky flamed out, and the likes of Henry Kravis got stuck in a rut, Mr. Wasserstein kept on reaching for more: a 26-acre estate in East Hampton, a palace on Fifth Avenue, a book (the aforementioned Big Deal , from Warner Books), a second, French-speaking wife and his own newspaper, The Daily Deal .

And now a seat at the table with Michel David-Weill and a mandate to radically overhaul what remains-even after the merger of the three banking factions in New York, London and Paris in March of 2000-a house divided. While giving Mr. Wasserstein the carte blanche to remake the firm, Mr. David-Weill has retained within his quiver one last arrow to defend his shrinking sense of self: veto power over any possible merger.

“Michel always recognized that the firm had to be relevant to be successful,” says a former Lazard partner. “The question is whether, today, relevance equals financial success.”

Nevertheless, to a large extent the future of Lazard will rest in the hands of Mr. Wasserstein, who is said to have invested more than $100 million of his own money for a 10 percent stake, making him the second-largest individual investor after Mr. David-Weill. It’s a big stake, one that may be sending a message, too: The Daily Deal aside, Mr. Wasserstein is first and foremost a banker, and he’s ready for his next act.

It could well be his most difficult one. Since hitting the jackpot in January 2000, when Wasserstein Perella advised Time Warner on its merger with AOL, his deal momentum has slowed. Joe Perella is gone, and 151-proof Bruce had become just a little too much for clients.

“Bruce became a little radioactive,” commented one rival banker. He was also involved in a bitter fight with his Dresdner bosses, who, subsequent to being taken over by the German insurance giant Allianz, quashed Mr. Wasserstein’s dream of taking Dresdner Kleinwort Wasserstein public under his executive leadership.

It would have been a classic double-dip: $600 million or so for the sale, followed by many millions more from the public offering. Now, with his Lazard stake, Mr. Wasserstein may well be setting up for that elusive second splash.

No doubt about it, Bruce Wasserstein will get even richer off this deal. But Mr. Wasserstein is quite obviously searching for something beyond lucre. It’s a new proving ground, and Mr. Wasserstein still has a few points to lay down.

Wasserstein’s Waterloo?

It is indeed something of a cliché to say that Mr. Wasserstein is not a great leader of men. Even within his eponymous boutique, turnover was always high, as one banker after another burned out on Bruce. Now he faces a management challenge-uniting three disparate banking factions in the midst of a steep market downturn-that would make Sandy Weill blanch.

He will certainly have to cull from the significant ranks of overpaid, underperforming Lazard partners. As any rival banker will tell you, most of these guys are just not pulling their weight. They had lost, to use Mr. David-Weill’s favorite word, their relevance. So Mr. Wasserstein’s toughest trick might well be finding a new generation of relevant men that C.E.O.’s want to listen to-a new crop of Henry Kravises, Joe Perellas, Eric Gleachers, larger-than-life figures, today’s Barbarians at the Gate.

But, simply put, there just are not that many great men left. And the ball-busting, pump-and-dump M&A mores that still define Mr. Wasserstein may not wash in today’s more institutionalized banking climate.

When you mix in what is probably the worst deal-making environment in a decade, Mr. Wasserstein may be marching into his Waterloo.

“Bruce is a great man, a man of insuperable intellect, and he is extraordinarily commercial,” says Mr. Fennebresque of SG Cowen Securities. “But the problem is that Wall Street has changed. If any man can bring back the great-man strategy to Lazard, it’s Bruce-but the question is, are there any great men left out there? Because in the end, there really is nothing else to offer at Lazard than the intellectual capital of the partners themselves.”