Lazard LLC

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Lazard LLC

121 Boulevard Haussmann
75382 Paris, Cedex 08
France
Telephone: (+33) 1 44 13 01 11
Fax: (+33) 144 13 0100
Web site: http://www.lazard.com

Private Partnership
Incorporated: 1848 as Lazard Frères
Employees: 2,700
Sales: US$512 million (1998 est.)
NAIC: 523110 Investment Banking and Securities Dealing

Lazard LLC is one of the last of the world’s leading private investment banking firms, and one of the world’s top ten mergers and acquisitions specialists. With the strength of the Lazard brand name—representing some 150 years at the top of its profession, and often mentioned in the same sentence with such global heavyweights as Morgan Stanley and Goldman Sachs—Lazard LLC is in the process of reinventing itself for the 21st century. Formerly three separate and autonomous firms—Lazard Frères & Co. LLC; Lazard Brothers & Co., Limited; Lazard Frères & Cie—each bearing the Lazard name but devoted to their respective New York, London, and Paris locations, the company, led by Michel David-Weill, a fourth generation Lazard family member, has taken steps to merge the three houses into a single corporate and cultural entity, with the Paris office as its headquarters. The move, begun in 2000 and expected to take up to three years to complete, is designed to help Lazard compete in a rapidly changing global investment banking marketplace, which has seen the rise of a few so-called “superbanks” capable of overseeing the wave of multibillion dollar mega-mergers that have marked the world’s corporate landscape in the 1990s and early 2000s. Lazard, which does as much as half of its business in the mergers and acquisitions market, nevertheless intends to remain steadfast to its tradition of modest size and private status, offering full-service, client-oriented banking, investment, and other financial services. In 2000, however, Lazard was under attack; outside investors, such as French financier Vincent Bolloré, not only gained significant footholds in Lazard’s ownership, but also placed pressure on the company to simplify its corporate structure. The loss of former heir-apparent (and David-Weill son-in-law) Edouard Stern, followed by the departure of rainmaker Stephen Rattner, raised succession issues for Lazard as it struggled to meet the challenges of the new global investment banking climate.

From Merchants to Merchant Bankers in the 1850s

The Lazard dynasty began modestly enough, as three brothers from France’s Alsace region—Alexandre, Elie, and Simon—left their native country to settle in New Orleans in 1848. There, the Lazard brothers founded the Lazard Frères (which means “brothers” in French) dry goods store. A year later, Lazard Frères & Co. followed the rest of the world’s fortune seekers to the gold rush in San Francisco. The company quickly expanded its business from its range of dry goods to include banking and merchant banking services, as well as exchange services for the foreign currencies market.

This last activity encouraged the company to return to France, where the Lazards opened a second office in Paris in 1852. The Paris office, which initially counseled the French government on its gold purchases, quickly focused on its financial advisory business. Lazard Frères et Cie, as the Paris branch was named, began working closely with France’s government and the Banque de Paris, establishing itself as the preeminent investment banker in the French capital.

In the late 1850s, another member of the Lazard family, Alexandre Weill, cousin to the three Lazard brothers, left France to join his cousins in the United States. The family business continued to grow, adding new services to its financial portfolio, including arbitrage services, making the shift away from its dry goods business complete by the 1870s. By 1876, Lazard Frères had abandoned all of its other activities to focus solely on its financial services business. The following year, the partners opened a third office, in London, in order to be present in that financial center. The London office adopted the name Lazard Brothers & Co.

Originally a unified company, the Lazard financial empire developed into a multiheaded organization during the later years of the 19th century. Precipitating the change in the company was the rise to control of Alexandre Weill, who, as the only member of the four partners to have male children, supplied the heirs to the family’s financial empire. Weill’s decision to move the San Francisco office to New York—placing the company at the heart of that booming financial center—prompted discord among his cousins and set the scene for a segmentation of the three company branches. Lazard Frères & Co. opened its New York office in 1880 and quickly carved a place for itself among the top Wall Street investment banking firms.

Each of the three Lazard offices concentrated on its local market, placing the company’s name at the center of the three main financial centers of the day. The lack of a rapid means of communication among the offices meant that each conducted its own business independent of the others and, at the same time, developed its own corporate cultures and its own partnership organizations. The Weill family, which initially took over operations of the Paris branch, maintained their ownership of the branch offices, however, and continued to receive the largest share among any of the other partners. These latter were, in fact, only partners in name: while each of the Lazard partners received a share of the company’s profit pool—the amount was later determined from the Paris office—they did not in fact receive any equity in the company.

The separation into distinct houses took place at the turn of the 20th century. In 1908, the London office became a separate company, which was a prelude to the company leaving, in large part, the Lazard/Weill family’s control. This move was forced upon the company by the British government in 1919, when the Bank of England enacted new rules prohibiting ownership of banks in the United Kingdom by foreign companies. Lazard Brothers came under the control of S.P. Pearson & Sons, when the Weill family sold nearly half of its stake in the London office. Pearson eventually built up its ownership of Lazard Brothers, reaching some 80 percent of that company’s shares, in the 1930s. Pearson maintained its position in Lazard Brothers until the end of the 20th century, when it agreed to sell its stake back to the Weill family.

The Weills continued to control the New York and Paris branches; during the initial decades of the century, the Paris office was led by David David-Weill (who added the hyphen to the family name), Alexandre Weill’s grandson. David David-Weill then transferred leadership of the company to his son Pierre. The outbreak of World War II, however, forced Pierre David-Weill to flee Paris and Europe for the United States, where he took over control of the New York office. David-Weill was joined by Andre Meyer, as both were named resident partners of Lazard Frères & Co. in 1943. In Paris, Lazard Frères & Cie ceased operations under the Nazi occupation.

The devastation of the European financial scene during the war caused the focus of Lazard’s activity to shift to its New York office. The rebuilding of much of the European and world’s economies helped promote Wall Street as the world’s financial capital, and Lazard established itself among the top financial services firms. Helping to solidify the company’s reputation was the arrival of Felix Rohatyn in 1948. Rohatyn, who left the company only in 1997 to become the U.S. Ambassador to France, forged a reputation as one of the era’s great deal-makers, building Lazard into one of the market’s top mergers and acquisitions specialists. With Meyer and Rohatyn at the lead of the New York office, Lazard Frères & Co. became the strongest of the three Lazard houses.

Piecing Together an Empire for the 21st Century

Meanwhile, a new generation of the David-Weill family was preparing to make its mark on the family-owned company. In the 1950s, Pierre’s son, Michel David-Weill, joined Lazard Frères & Cie, which had been devastated by the war years. Michel David-Weill succeeded in turning around that company by the end of the decade, re-establishing the Lazard name as the preeminent name in investment banking in Paris. In 1961, Michel David-Weill, who inherited the family’s controlling share of the Lazard empire, was named as a general partner of New York-based Lazard Frères & Co.

The 1970s saw the balance of power shift within the global Lazard empire—which by then included offices worldwide. The failing health of André Meyer gave David-Weill an opportunity to take over direction of the New York branch as well as the Paris branch, uniting the two formerly separate offices under the same chief for the first time since the beginning of the century. Michel David-Weill was named senior partner of Lazard Frères & Co. in 1977.

Meanwhile, in London, the third member of the Lazard investment family was struggling against a new wave of competitors entering the British financial markets in the 1970s. Struggling to keep up in its market, Lazard Brothers finally sought help in the form of a merger with another company. This move, however, was blocked by the other two members of the Lazard group.

The Lazard Brothers crisis served to open up an opportunity for David-Weill to buy back some of the shares in the London office from Pearson. In 1984, David-Weill set up Lazard Partners, a private limited U.S. partnership, joining his own and related Lazard shares into the new vehicle. Pearson in turn contributed its holdings in Lazard Brothers, taking a 50 percent share of Lazard Partners, which then gained 100 percent control of the London office. Although the deal did not yet give David-Weill outright control over the London Lazard branch, it did bring together the three branches into a more cooperative, globally operating network.

Company Perspectives:

Lazard is dedicated to our cornerstone enterprise: financial advice and transaction execution on behalf of our clients. The firm’s resources are concentrated on these activities, and our bankers are free to devote a rare level of expertise to their clients full-time.

David-Weill’s timing was right. While the Paris branch was reaping the benefits of the French wave of nationalizations of its banking industry, which Lazard Frères et Cie helped coordinate, David-Weill had correctly recognized the growing globalization of the international marketplace, as mergers and acquisitions began to cross borders, a trend that especially picked up in the 1990s. Meanwhile, Lazard had shunned, in large part, the wave of leveraged buyouts that washed across the financial world during the 1980s, thereby avoiding the fallout as the world economy slumped in the late 1980s and early 1990s.

At the end of the 1980s, David-Weill was named senior partner at the Lazard Brothers branch, marking the first time since the beginning of the century that one person held the leadership position in all three Lazard firms. The move toward formally uniting the three branches under a single management only came slowly, however.

In the mid-1990s, the three Lazard firms took a number of steps toward unification. Among these was the creation of Lazard Capital Markets, which was formed as a single globally operating entity providing underwriting services to Lazard clients in all three branches. More significantly, the three offices began a common profits pool from which to pay its partners. David-Weill himself decided the amount partners were to be paid. The move was not well received by the company’s partners, given that the New York office generated twice the amount of profits of either the London or Paris offices. The company lost a number of its partners, particularly a number of its brightest stars, who were tempted away by the promise of better compensation at one of the newly emerging investment banking giants.

Lazard found itself caught up in a new trend. As mergers and acquisitions specialists became involved in a series of “mega-mergers,” which in turn were creating a new breed of huge, globally operating companies, the banking firms themselves began to take on scale to meet their new clients’ needs. The emergence of giants such as Morgan Stanley Dean Witter and Goldman Sachs and others had come to dwarf the three individual Lazard houses. Lazard, which had long ranked among the top tier mergers and acquisitions houses, found itself slipping in the ranks, and even dropped out of the top ten entirely in 1997.

In that year, the three Lazard firms took a new step toward their own in-house merger, when the New York-based Lazard Asset Management absorbed the other Lazard companies’ asset management operations. Lazard, however, continued to find difficulty in recruiting—and even keeping—the industry’s top banking stars. The retirement of Felix Rohatyn, who was named the U.S. Ambassador to France in 1997, shook up the company. Lazard was equally shaken by the defection of Edouard Stern—David-Weill’s son-in-law and probable successor—who left the company that same year. Rohatyn’s, and Stern’s, replacement as top rainmaker was Steven Rattner, a former journalist who had gained an international reputation as a top deal-maker during the 1990s. Rattner, named CEO of Lazard Frères & Co., was credited with helping to clarify some of Lazard’s operations, such as revealing the amount paid to each partner, while also convincing Michel David-Weill to cut his own 15 percent share of the New York office’s profits back to just ten percent in an effort to appease disgruntled New York partners.

Rattner did not remain with Lazard for long. His own political ambitions (he was popularly tipped for a role in the presidential cabinet in the event of a win by Al Gore) brought him to step back from active management of Lazard in 1999, before leaving the company altogether in 2000. By then, however, David-Weill had used his own funds to buy out Pearson’s share of Lazard Partners, giving him majority control of the three pieces of the Lazard empire.

In 2000, David-Weill announced his decision to rejoin the pieces to create a single, globally operating entity, Lazard LLC. Based in the company’s traditional Paris headquarters, the newly united Lazard hoped to regain some of its former luster in the world’s international market. The company remained dedicated to its modest size and, especially, to its status as one of the few remaining private partnership companies in the industry—a position that enabled the company to provide a higher degree of discretion to its clients.

Key Dates:

1848:: Lazard Frères is founded in New Orleans.
1849:: Lazard Frères moves to San Francisco.
1852:: Lazard Frères & Cie is opened in Paris.
1856:: Alexandre Weill joins company.
1876:: Company focuses on banking activities.
1877:: Lazard Brothers is opened in London.
1880:: Lazard Frères moves to New York.
1908:: Lazard Brothers separates from other branches.
1919:: Company sells a 45 percent stake to S.P. Pearson & Sons.
1932:: Pearson gains 80 percent of Lazard Brothers.
1943:: Amid the upheaval of World War II, Pierre David-Weill and André Meyer flee France and join the New York office.
1948:: Felix Rohatyn joins company as partner.
1950:: Michel David-Weill joins Lazard Frères & Cie.
1961:: David-Weill is named general partner of Lazard Frères & Co.
1977:: David-Weill is named senior partner of Lazard Frères & Co.
1984:: Lazard Partners is formed.
1989:: David-Weill is named head of Lazard Brothers.
1995:: Lazard Capital Markets is formed.
1996:: Single profits pool is created for three Lazard firms.
1997:: Lazard Asset Management takes over all Lazard asset management operations.
1999:: David-Weill buys out Pearson stake.
2000:: All Lazard operations are combined under Lazard LLC’s direction.

Although David-Weill had succeeded in uniting his family’s empire under his control, he nevertheless faced a new outside threat, when both Swiss investment firm Warburg USB and French multibillionaire investor Vincent Bollore built up significant positions in firms that indirectly owned parts of the Lazard company. Warburg and Bollore both began to place pressure on David-Weill to simplify the company’s organizational structure, widely described by observers as “Byzantine,” but which also was credited with helping the company to avoid the risks of a hostile takeover in an investment climate that promised increasing consolidation moves in the new century.

Principal Subsidiaries

Lazard Frères & Co. LLC; Lazard Brothers & Co., Limited; Lazard Frères & Cie; The Caliburn Partnership (Australia); Lazard & Co. GmbH (Germany); Lazard AB Stockholm; Lazard Asia (H.K.) Ltd (Hong Kong); Lazard Asia Limited (South Korea); Lazard Asia Ltd (China); Lazard Asia Ltd (Singapore); Lazard Asset Management; Lazard Asset Management (Deutschland) GmbH (Germany); Lazard Asset Management (U.K.); Lazard Asset Management Egypt; Lazard Asset Management Pacific Co. (Australia); Lazard Brothers & Co., Limited (U.K.); Lazard Canada Corporation; Lazard Capital Markets (France); Lazard Capital Markets (U.K.); Lazard Frères & Cie (France); Lazard Frères & Co. LLC; Lazard Frères K.K. (Japan); Lazard India; Lazard Japan Asset Management (K.K.); Lazard Sp. Z.O.O. (Poland); Lazard Vitale Borghesi S.P.A. (Italy); Lazard, Asesores Financieros S.A. (Spain).

Principal Competitors

The Bear Stearns Companies Inc.; Daiwa Securities Group Inc.; Deutsche Bank AG; FMR Corp.; The Goldman Sachs Group, Inc.; Lehman Brothers Holdings Inc.; Merrill Lynch & Co., Inc.; Morgan Stanley Dean Witter & Co.; The Nomura Securities Co., Ltd.; Paine Webber Group Inc.; Salomon Smith Barney Holdings Inc.; UBS Warburg.