The last tycoons: the secret history of Lazard Frères & Co (124 page)

Over time, by many accounts, Edouard's relationship with Brossard transcended its original--and ongoing--professional aspect. He seemed to be quite taken with her, and vice versa. He encouraged her artistic career and hired her to decorate his Zen palace in Geneva. He also reportedly took her on vacations to India and Africa. There is an extraordinary picture Brossard took of Edouard when they were on vacation together big-game hunting in Siberia. Edouard is holding a shotgun behind a freshly killed, massive brown bear. Blood from the bear's mouth appears on the snow. They once rented a game preserve--said to be the size of Belgium--near Lake Victoria in Tanzania. They would fly off for the weekend in his private jet to Venice, Florence, Bruges, and New York. Edouard pushed her to leave her husband and live with him. But she declined out of a fear that Edouard would lose interest in her, only to leave her forlorn and alone.

Much to Edouard's chagrin, they began to grow apart. She disappeared for a time in the fall of 2004 after they had vacationed together in Africa that summer. Edouard discovered she was in Las Vegas. He surprised her at the airport in Geneva when she returned. "Edouard was very upset at the time," a friend told
Vanity Fair.
"She didn't want to give up her life. She thought she would be left with nothing." He thought he had hit upon a solution in early January 2005, when he opened a bank account for Brossard at a Credit Suisse branch and put $1 million in it. He believed she could now leave her husband for him. Later reports, though, suggested Edouard had given her this money so she could buy a number of Chagall paintings for him, although how she would have access to such work is a mystery. They had also discussed getting married. In any event, once again, Brossard did not respond as Edouard had hoped. She stopped returning his calls and seemed to disappear once again.

On February 24, four days before his death, he confessed to his longtime lawyer Kristen van Riel, who had bailed him out of similar situations with other women, that he was in a bit of a fix. He told van Riel for the first time about Brossard and the $1 million bank account. The lawyer placed several calls to Brossard but, like Stern, had no luck. Then they decided to freeze her access to the account. "I'm never going to see her again," Stern told van Riel, who, on the contrary, predicted the scheme would get her attention and that she would call. "And--surprise, surprise--she did," said a Stern adviser. "She called Edouard on Friday," three days before his death. She was not pleased to have been "cut off," but in any event Edouard convinced her to fly that day to Geneva from Paris. They met three times over the next three days, including one final time on the evening of February 28. They were to meet at eight that night. Brossard arrived fifteen minutes early and let herself in with her key. "Only two people know what happened in that bedroom," Koifman told
Vanity Fair,
"and one is dead." It didn't take a great leap of faith, though, to believe that Edouard expected the Monday night visit to include some unconventional sex. Said Koifman: "I don't think you negotiate financial transactions wearing a latex suit."

Paris Match,
the borderline racy French magazine, seemed to know exactly what happened that night in Edouard's apartment. "He presses a button concealed in the living room furniture, and two hidden drawers slide open," the magazine reported. "One contains sex toys for lovemaking sessions. The other holds four loaded firearms. Cecile Brossard continues to ask questions, but Stern doesn't answer her; he is elsewhere. He slips into the latex suit that she gave him, and begins to lead her on. She plays along. His hands are bound, and he's sitting on a 'pleasure accessory.' At this point, she reportedly heard him tell her, 'A million dollars is expensive for a whore.' At this, she grabs a gun and shoots four bullets in a row, two in the head, one in the chest, and one in the stomach. Stern falls to the ground."
L'Express,
another French magazine, confirmed in its own account that Edouard's final words were indeed "A million dollars is expensive for a whore."
L'Express
claimed Brossard then picked up a nine-millimeter pistol and fired one shot at Edouard's head from a distance of ten to fifteen centimeters, killing him instantly. She fired three more shots for good measure.

MICHEL BELIEVED THE
simplest explanation for Edouard's murder was the most likely one. "Some people are always Machiavellian," he said, "and always believe things are more complicated than they appear. And I have the opposite tendency. I have the tendency that the explanation which is the stupidest is generally the right one and not the smartest. He had obviously just promised her money and then taken it back. What to me is unbelievable is then getting physically tied up, in front of somebody he had just done that to. It's a proof of either confidence or a wish to take risks, which is strictly unbelievable. But this is what occurred, and I believe it was in his nature to take this sort of risk. And so, it's not completely surprising that a person like him finishes in a tragedy like that. It's not totally surprising." He said he had not known of Edouard's unusual sexual interests, "but as my father used to say, 'In sexual matters, nothing is astonishing.'"

On March 15, the police showed up at Brossard's apartment, searched it, and took her away for questioning. She cracked. The records of her telephone conversations proved that what she originally told the police did not make sense. She told them everything. She took them to the shores of Lake Leman, where she had tossed the murder weapon and the two other guns she had taken from Edouard's apartment. A police diver found them all plus a key to his apartment she had also tossed. The police took from her the letter Edouard had written to her proposing marriage, but only after she had asked for--and received--a copy of it. At first Brossard was incarcerated in Champ-Dollon prison in Geneva. Suffering from severe depression, she was later admitted to a psychiatric hospital. "She is a desperate woman who cries a lot and has killed the man she loved," one of her lawyers said.

WHILE SHOCKING, AND
an understandable diversion, Stern's murder had no discernible effect on Bruce's long march to the Lazard IPO. Edouard had been gone from the firm since 1997, and his needling lawsuits were immaterial at best. While the $300 million that Eurazeo invested in Stern's IRR seemed, over the years, like a poor investment--the original EU264 million investment had been written down to EU190 million at the end of December 2004--somehow even this was salvaged when, in October 2005, Eurazeo sold its IRR stake for EU307.7 million back to IRR itself, for an improbable profit of EU44 million after seven years. The combination of the cash sales of the IRR and Lazard stakes in 2005 completed Eurazeo's nearly decade-long transformation from Michel's personal investment vehicle into a full-fledged publicly traded private-equity firm, now one of Europe's largest. Eurazeo's stock price responded accordingly and now trades around its all-time high of EU104 per share, up more than 100 percent since Bruce and Michel reached their truce. The rise in the Eurazeo share price, of course, greatly benefited its largest shareholders, including Michel and his sister; the proprietary traders at UBS, led by Jon Wood, who had been successfully fighting Michel for nearly ten years; and Credit Agricole, which is close to making a profit on its investment after doing Michel a favor in 1999 and buying out the stake in Eurazeo held by the raider Vincent Bollore.

On April 11, the IPO took another important step toward reality when Lazard filed with the SEC an amendment to the registration statement, including for the first time information that would allow investors to assess the price tag the firm had placed on itself. This filing revealed that Lazard and the underwriters were aiming for a price range for the equity of between $25 and $27 per share, valuing 100 percent of Lazard equity at between $2.5 billion and $2.7 billion. When the net debt of around $1.4 billion was added, the enterprise value of the firm was between $3.9 billion and $4.1 billion. Using the midpoint of $4 billion, Lazard would be valued at 11.8 times the 2005 estimated EBITDA (earnings before interest, taxes, depreciation, and amortization) of $339 million and a P/E ratio of 17 times the 2005 estimated earnings.

Both of these valuation metrics, by design, valued Lazard at a higher multiple than the global investment banks, such as Goldman Sachs, Morgan Stanley, and Merrill Lynch, which Lazard executives had taken to referring to as "hedge funds" and which tended to trade at a P/E multiple of 12. But the proposed Lazard valuation would be at a discount to Greenhill & Co., which in the year since it went public had become the gold standard of boutique investment banking at least as far as its public valuation was concerned. Many wondered who would invest in this offering that would leave Lazard with significant debt, largely dependent on the cyclical M&A business, when only a minimal amount of the capital raised would be retained in the business. Indeed, the money raised would be paid out to the historical shareholders at a materially higher price than the market believed the stock was worth. Also, for the first time, this value range indicated that Bruce's $30 million initial investment in Lazard, plus the shares Michel granted to him, were set to be worth around $290 million.

In the revised registration statement, Lazard finally admitted that if the compensation of its managing directors were included as an operating expense, "the firm lost money in each of the last three years," just as Michel had been saying. For some existing and former Lazard partners, this admission was confirmation that the financial statements in the S-1 were all but fraudulent because they failed to show the losses and then presented the profitability on a pro forma basis. One Lazard partner said he could not believe the SEC permitted the accounting to be presented in this way. He was even more astounded that this happened given that Steve Golub was a former deputy chief accountant at the SEC. "I am flabbergasted, I have to say," he continued. Ken Wilson, the former Lazard FIG partner now at Goldman Sachs--the lead underwriter of the Lazard IPO--shared the view that some top bankers on Wall Street were buzzing about the Lazard accounting. "There is a clear pattern of greed and deception" at Lazard, he said. "There is something in the culture that permitted it to happen."

The press was starting to hear these ruminations, too. "All this raises the question of why outside shareholders would want to get involved," the
Economist
stated. "Mr. Wasserstein has little option but to complete the IPO. But such are the uncertainties around this strange flotation that some observers are already wondering whether it is an opening move rather than an end game."
BusinessWeek
opined, "Add it all up and investors had better be real comfortable with Wasserstein's stewardship before they get involved in his next excellent adventure as the CEO of a public company. Eventually, the market will sort through the confusing details of the prospectus and value Lazard accordingly. Wasserstein has built a career by defying gravity. But this could be one rocky liftoff."

Finally, after four months of laborious legal filings and their revisions, the time had come for Bruce and his top executives to see if they could convince the market to buy the shares of what Robert Willens, a top tax and accounting analyst at Lehman Brothers, called "one of the most complicated things I've ever seen." While the S-1 and its amendments are the official documents the SEC requires of a private company seeking to become public, another key document--the prospectus--is used for marketing purposes with potential investors. The prospectus is a slightly jazzed-up version--color pictures are permitted--of the final amended S-1 and is prepared for use on the road show. (The Lazard IPO prospectus was one of the lengthiest ever written.) The culmination of the road show, assuming there is sufficient investor demand, is the pricing of the stock and its purchase by the underwriters.

Following the SEC's sign-off on the final amendment to the S-1, Lazard could print prospectuses and begin the road show. After a week or so of stops in major cities in western Europe--about halfway through the process--the Lazard IPO road show rolled into New York for lunch at the New York Palace hotel on April 27. The IPO pricing would be negotiated with Goldman Sachs after the market closed on May 4, allowing the new Lazard stock to trade--under the symbol LAZ--beginning at 9:30 a.m. on May 5.