The last tycoons: the secret history of Lazard Frères & Co (84 page)

That rare day at "21"--so the story goes--Bruce came up to Michel, and the two men spoke briefly. Bruce had confirmed an idea Michel had been mulling. When Michel came back to Rockefeller Center, he walked into Felix's office and announced: "We're going to try to merge with Wasserstein Perella." Felix was stunned--and appalled. While he thought there may have been
some
logic to hiring Bruce Wasserstein, Gary Parr (a highly regarded financial institutions banker), and a few other talented Wasserstein Perella bankers, with Lazard still under the cloud of ongoing federal investigations into its municipal finance department, a merger between the two firms--even if it could be negotiated and announced would never close. There was also the concern that the majority of the Wasserstein Perella bankers weren't up to Lazard's standards, and that even Bruce himself was not cut from the traditional mold of a Lazard banker, to say nothing of the fact that a full-blown merger with Bruce's firm would be a total slap in the face to the aspirations of the younger Lazard partners who had been waiting patiently for the very moment, now at hand, when Felix's departure, like the felling of a mighty old-growth Douglas fir, would allow a little sunlight to hit the forest floor. Furthermore, the word was that Wasserstein Perella had not been making any money. Add to that the fact that Lazard had never, ever grown through acquisition, and there were any number of compelling reasons why Michel's brainstorm was stillborn. Felix told Michel, "You can't merge with Wasserstein Perella, you know. There's 120 people or something like that."

But Mr. 4.1 pushed ahead anyway. A small group comprising Mel Heineman, the general counsel; Steve Golub, a partner who had once been the deputy chief accountant at the SEC; and Steve Niemczyk, a young partner who worked for Wilson in the FIG group, were secretly dispatched to review the books and records of Wasserstein Perella & Co. Felix and Ken Wilson were kept abreast of their findings. Steve Rattner was kept in the dark. "Felix was deeply skeptical," Wilson remembered. "When you looked at the business that Wasserstein was doing, I think their average fee was like $250,000. I mean, it was a lot of tiny deals, marginal people and offices. Their capital markets unit was a joke." Wilson said the due diligence revealed that the firm was running out of money and had little in the way of backlog or receivables. "They were a bunch of turkeys," he said. As word of the potential merger started to circulate around the firm, Wilson recommended to Michel that a partners' meeting be held to "get this on the table." On a Friday afternoon, Michel invited only a subset of New York's most important partners to an impromptu meeting in a conference room on the sixty-second floor of 30 Rockefeller Center to discuss the possibility of a merger. "There was good attendance," Wilson remembered, a wry little smile forming on his face. Another partner at the meeting said of Michel, "It took a two-by-four piece of wood to gain his attention, but at some point he woke up. Like all of us, he tried to push things under the rug. But sooner or later he became a realist. He realized he could not avoid the fact that he had a problem."

Michel kicked off the meeting by talking about the potential merger and about the cost savings that could result. But mostly he spoke about Bruce as the next Great Man of Lazard. Michel explained that Bruce had always loved Lazard and had conceived of Wasserstein Perella in Lazard's image. This was a chance to get Bruce, Michel told his partners. Incredibly, Michel had been so utterly indifferent to his partners' hopes and dreams that he dashed them completely by proposing this combination. Ken Wilson recalled that Michel's "views were so far from reality that it was time to go around the table" to get input from the other partners. Jerry Rosenfeld, who had been seated next to Michel, spoke first.

Wilson remembered Rosenfeld's comments as being quite blunt. "So he turns to Jerry," Wilson said. "Jerry says, 'This is the dumbest fucking deal I've ever heard of. There isn't a single one of those people we would ever hire. We would never take them off the street. It makes no fucking sense.' And the comments went downhill all the way around." Steve Rattner recalled that "one by one, everybody just laid into Michel and just let him have it right between the eyes." All parties remembered that after the negative consensus had formed--a rare showing of unity of the partners against Michel--the Sun King backed down. "Then I will not go forward," Michel said quietly. And just like that, the Wasserstein deal was dead. But despite this victory, to some partners the Rubicon had been crossed. "In response to these comments that Michel had made at the outset about the fit and everything else, they were just so far from reality that his credibility was shot," Wilson said. "And Bill Kneisel, [a partner] who I recruited [from Morgan Stanley], a good guy--and at the end of the meeting, I walked out with Bill. He turned to me, he said, 'You know, Wils,' he said, 'this emperor has no fucking clothes.' He said, 'I'm gonna watch a lotta football games with my son this fall, and I'm out of here.'" (He left soon afterward and returned to Morgan Stanley.) Wilson recalled that Kneisel's reaction was typical. "The average foot soldier left that meeting saying, 'What the hell is going on?' There was no logic for it. And when Michel tried to articulate it, it just sounded awful."

Steve was furious with Michel about the Wasserstein gambit. Not only had Michel not explicitly told him about what was happening; Michel denied there was anything to the rumors Steve had heard even after he went into Michel's office to ask him. "The next thing I know, he's locked in meetings with him," Steve explained. Felix, who was leaving regardless of the outcome, remembered the meeting as initiating "a real revolution inside the firm." Independently, Steve used the exact same word to describe what happened as a result of the confluence of Felix and Edouard leaving, Bruce being approached secretly, and the mushrooming cost to the firm of the municipal finance scandal (eventually the firm paid a whopping $100 million to settle all aspects of the scandal). "This was a revolution," he said. "This was not Michel's idea. Michel did not want this. He agreed to it grudgingly, but it was a revolution." The news of the Wasserstein discussions and their abandonment was leaked, without color, to the
Wall Street Journal,
which published the story on May 2, the day after Edouard left the firm.

For his part, Bruce found the schizophrenic discussions bizarre. One person who knows him well said, "Bruce describes it as like one of the most surreal experiences of his life. I mean, Michel comes to him. Michel proposes this to him. Bruce says, 'Well, what about all the partners in New York? I can work with Steve. I can work with Ken. I'll do whatever it takes to make it work with those guys.' Michel says to him, 'You don't need to. I don't care about those guys.' And this is one of the many times he says this. And, you know, Bruce is stunned when they all come back, after Michel saying it's all done, come back and say, 'No deal.' So it was kind of interesting."

Indeed, Mike Biondi, Bruce's longtime consigliere, doesn't even recognize the Lazard version of the brief courtship. Wasserstein Perella was doing fine financially, he said, and was growing faster than Lazard at this time. "The Lazard spin versus the reality of what happened there is 180 degrees different," Biondi explained in a conference room at Lazard, where, ironically, he is now a partner. According to Biondi, the process actually started with
Felix,
who, while leaving Lazard for Paris, wanted to have a hand in shaping the future of the firm. "Our perception was he didn't want the place turned over to any of the likely suspects who were here," Biondi said. "There was a lot of broken glass between him and Rattner and others, and in a very old Lazardian way. Felix preferred to turn Lazard over to somebody from the outside because, first, it would have been sort of his doing and, second, he had no confidence in the folks that he had lived with every day." With Michel's blessing, there were a series of negotiating sessions at the Manhattan offices of Wachtell, Lipton between Michel, Felix, Heineman, and Niemczyk (for Lazard) and Bruce, Biondi, and Clay Kingsbury (for Wasserstein Perella). Rather quickly, according to Biondi, there was a meeting of the minds among the executives that Lazard and Wasserstein Perella would combine in a no-premium "merger of equals" deal, where Bruce would become the CEO of the New York partnership. When the long-anticipated merger of the three houses of Lazard followed subsequently, Bruce would have a seat on the management committee of the merged global firm.

"The Lazard thing broke down in 1997 on one issue, as far as I'm concerned, and one issue alone," Biondi said.

It broke down because when you got down to talking about what it really meant that Bruce would be chief executive--in Bruce's mind and my mind--it meant that we would have the ability to pay people and promote people, and do all that sort of stuff, without interference, other than obviously having to have a budget and being part of the firm. But that Bruce was going to be the final decision maker for that in New York. And we felt very strongly that if we were going to fix the difficult culture that existed at Lazard and make it more team-oriented and get the synergy out of doing the thing, people had to understand that Bruce was in charge and that he was serious about running it in a collegial, team-oriented way. But Michel said, "No, I'm going to have a veto, of course, over all this stuff." And I remember very clearly having a heart-to-heart with Bruce and with this fellow Clay Kingsbury and saying, "It won't work. It just won't work. People are going to run around us, keep going to him, and it'll be a nightmare. We're better off on our own." And Bruce is a smart guy. He understood that himself, and
that's
why the deal died.

Biondi and Bruce believed that Michel then--very cleverly--went back to his partners, announced that he was going to pursue a deal with Bruce anyway, and then when he retreated--following the easily anticipated firestorm--Michel would look like he had listened to the demands of his partners. The story of the Lazard partner revolt was then leaked to the press as the reason for the deal's demise. "You've been around Michel for a long time," Biondi concluded. "Do you think Michel gives a shit about what the Lazard partners say? The deal was dead before that ever happened because we killed it."

Regardless of what really happened, over the next few weeks Michel's massive office on the sixty-second floor of 30 Rockefeller Center became, if not quite the Bastille, then the epicenter of the revolutionary fervor surging through the New York partnership. In the wake of that Friday afternoon partnership meeting, Michel had learned firsthand about the dangers of the First Amendment's guarantee of freedom of speech and peaceful assembly. There would be no more group discussions with the partners about seminal matters. Instead, Michel met one by one with key partners to try to reach a consensus about how the firm should be managed in the post-Felix era. "Michel likes to do things one on one," a former partner said. "He hated big meetings because people could gang up on him." Out of these discussions emerged the evolving view that Michel could no longer run the firm unilaterally. The argument ran that Lazard's historically flat structure, where basically everyone--from banking to asset management to capital markets to real estate--reported to him, since he alone decided partner compensation and promotion, no longer worked. The firm was now too big and in too many business lines for Michel to manage alone. Left unsaid by most of the senior partners--but now painfully obvious since the firm seemed so out of control--was that they believed Michel no longer had the skills, either intellectually or temperamentally, to run Lazard day to day.

Out of these tortured discussions, a combination of Danton, Marat, and Robespierre emerged in the form of Steve Rattner. Since Ken Wilson had taken over as head of banking in 1995, Steve had returned to deal making almost exclusively. With Felix having retired on April 30, Steve was now the firm's largest producer. Steve recalled: "Everybody said to Michel, 'Michel, you've got to do something!' Michel said, 'What?' Out of it all came
me,
and frankly I was probably the last man standing. A lot of people said, 'Well, I don't know. He's never run anything. He ran banking once, and it didn't work out great for everybody, but who knows?' What happened was that a number of people who mattered, including the asset management guys, Damon, and some of the senior bankers, said, 'Steve may not be perfect, he may not have enough experience to do this'--which I surely didn't--'but there's nobody else. If you don't get him to do this, we're really heading toward a cliff.'"

Steve had also won the support of Loomis, then still in San Francisco but on his way back to live in New York, who wrote Michel a long letter on Steve's behalf. The problem, though, for Steve and Lazard in his being drafted to run the New York partnership was that at that very moment he was also considering whether to take a job in the second Clinton administration. Steve and Maureen had been ratcheting up to the stratosphere their interaction with and financial support for the Clintons. He raised millions for Clinton in 1996 as co-head of the Wall Street fund-raising effort. Soon after Clinton's second-term inauguration and as the revolutionary fervor inside Lazard was growing, Steve learned he was being considered for a "reasonably interesting job" in the second Clinton administration. He wouldn't say what job he had been offered, because he did not want the person who ended up with it thinking he or she had been second choice. "I wasn't going to be secretary of the Treasury" is all that he would allow. "It was a job that, but for this, I would have taken. Six months earlier, I was doing my banking thing, and the next thing I knew, I was thinking about either Washington, D.C., or being something at Lazard."

Having been nominated by his partners to run New York, Steve began a "long series of tortured negotiations" with Michel "over what I would do." He said he was not planning to accept the new Lazard job "without some authority" from Michel to actually run New York. At one point, in the middle of these negotiations, as a symbol of an emerging detente between the two men, Felix asked Steve if he wanted his office. Steve told him no--but what he really meant was "not yet." The negotiations between Michel and Steve produced a "kind of vague" agreement between them that was never formalized into a contract, although "we did actually write some stuff down and sign it," whereby Steve would participate in the meetings with Michel where individual partners received their annual profit percentage--a role Loomis had desperately wanted but Michel never before permitted. A new executive committee was set up, for which Steve both set the agenda and chaired. Steve also ran the weekly partners' meetings even if Michel attended. He decided to move into Felix's office. "The kinds of things that would cause people to say, 'Well, this guy probably does have some responsibility,'" Steve explained. The one quirk was what his title would be. Steve suggested to Michel that he be president and chief operating officer of New York, with Michel being chairman and CEO. But Michel objected. This was one of his "eccentricities," Steve explained. Michel told Steve, "You can't be president, because in France the president is the one who does all the work and my friends will all think I've retired and I can't have that." The two men agreed that Steve would be deputy CEO of New York, of all things, after Steve confessed that he cared more about what he would be able to accomplish than about his title. One partner at the time said that Michel viewed Steve as "a terrific rainmaker, very well organized, disciplined, and ambitious. He'll do some good things; he'll be a good leader. He's the most able of this whole group. And maybe I can control him, and if not, I can always get rid of him. Michel viewed Steve as a convenient person at the moment but certainly not with the potential of thinking that Steve could be somehow a successor in the long term."