The last tycoons: the secret history of Lazard Frères & Co (110 page)

It is simply not true to say, as Bruce did, that "people invent a simple, convenient fiction to account for our involvement in these deals." The inconvenient truth for Bruce was that he was directly responsible for what happened in the Allied and Federated bankruptcies, and he was not held even the slightest bit responsible. He had already banked his multimillion-dollar fees and moved on. The First Boston senior management could not even penalize him, because, of course, he no longer worked at First Boston when the bankruptcies occurred. This is the advice that supposedly savvy corporate CEOs pay millions for?

Despite Bruce's spin, this bankruptcy filing was unequivocal proof of the danger of horrific M&A advice. "What he was always best at," one investment banker said of Bruce at the time, "was getting boards of directors to take leave of their senses." But there was more. About two weeks before the Allied and Federated filing, the
Wall Street Journal
published a fifty-five-hundred-word excerpt from its reporters Bryan Burrough and John Helyar's
Barbarians at the Gate,
the soon-to-be-best-selling account of KKR's $25 billion LBO of RJR Nabisco, until November 2006 the largest leveraged buyout of all time. In the article--and the book--the authors reported that Henry Kravis accused Bruce (and Jeff Beck at Drexel) of leaking the news, to both the
Journal
and the
Times,
not only that Kravis's KKR intended to enter the fray for RJR Nabisco but how he planned to win. If true, this bizarre portrayal was an unconscionable breach of a client's confidence. Kravis was livid.
Barbarians at the Gate
also described, unflatteringly, how Kravis kept Bruce out of the most important meetings during the deal and how Kravis had hired him--and paid him $25 million--just to keep the other bidders from doing so.

Bruce fought back. He demanded the
Journal
print a retraction. But it would not. Instead, the paper printed Bruce's 242-word letter of denial. Bruce questioned the reporters' statement that the source of the leaks may never be known since Burrough and Helyar were the reporters on the RJR story. "Consequently, they do know for a fact who leaked to the
Journal
," Bruce wrote. "They also know I wasn't the one.... I hereby release you and also any other paper from any pledge of confidentiality to reveal if I was the source of the alleged leak." Burrough, as he should, said he would go to his grave without revealing the source of the information. Some eighteen years after the fact, he said he found Bruce's reaction to Kravis's accusation that Bruce had leaked the story to be a somewhat halfhearted "show of fighting back" and nothing more "than an elaborate presentation to his existing clients and prospective clients" that he could still be trusted. But another reporter couldn't fathom how Bruce would recover from Kravis's accusations. "Kravis had to know the damage his portrayal of Wasserstein would inflict," wrote Joe Nocera (now a columnist at the
Times
) in a May 1991 profile of Bruce in
GQ.
"Investment banking is based on trust. Takeovers rely on secrecy. For Wasserstein, having the world see him as Wall Street had long seen him--as a loose cannon who couldn't be trusted--was bound to have devastating consequences."

Bruce's mug was now squarely in the media's crosshairs. Even when he found a friendly shoulder to cry on, the resulting story did him no favors. For instance,
New York
magazine's financial columnist Christopher Byron wrote sympathetically in February 1990 about how the rap against Bruce for the Campeau disaster may be "a bum one" but was wholly unsympathetic to the once-loquacious Bruce's refusal to consent to an interview. "Requests for interviews get shunted to an outside P.R. firm, and the stonewalling begins," Byron wrote. Still, Bruce allowed Byron up to his twenty-seventh-floor office for an
off-the-record
chat about the "exaggerations and distortions that have crept into the record regarding his deal-making activities." This didn't work out too well, either. "Get Wasserstein talking, even on background, about the potshots being taken at him, and, in frustration, he whips out page after page of documents justifying his actions," Byron observed. "Out come the lists, the tombstones, the internal memos and analyses. Poring over them, he can get so excited that he becomes a kind of mad professor, hunched over next to you, unaware that he has actually pulled off his shoe and begun picking eagerly at his toes." Byron's unalloyed conclusion: "A backlash is building against Wall Street's unrestrained decade of dealmaking, and Wasserstein has become a handy lightning rod for public frustrations." Even the reliably fawning
M, Inc.
trashed Bruce in its September 1990 annual New York power-broker article, claiming that he was "in a slump." (Felix and Michel were listed among the still powerful.)

THE ONSET OF
the so-called credit crunch, following the collapse of the United Airlines buyout and the Allied-Federated bankruptcy, brought deal-making activity to a near standstill. Restructuring activity took center stage. There was a glimmer of hope for deal makers, though, toward the end of 1990, when the Japanese industrial giant Matsushita bought the Hollywood powerhouse MCA for $6.6 billion. From an investment banking standpoint, the deal was a testament to the growing importance of M&A boutiques after the dominance, during the 1980s, of the full-service, well-capitalized Wall Street firms. Felix and Lazard advised MCA. Allen & Co. and Michael Ovitz, the then-powerful chairman of Creative Artists Agency, advised the Japanese. The big firms were shut out of one of the biggest deals of 1990. At the end of November 1990, the
Wall Street Journal
reported that according to an unnamed source, and unbeknownst to both Allen & Co. and Ovitz, three Japanese bankers in the Japanese affiliate of Wasserstein Perella had secretly advised Matsushita's senior management by providing a "second opinion on price and structure" without attending any of the meetings for the deal. The Matsushita management "didn't want to disturb Ovitz" with Wasserstein Perella's involvement, the
Journal
's source said, "but they really liked having a second opinion, someone who could be impartial." Wasserstein Perella's M&A ranking in 1990 stood at a dismal eleventh--down from the top echelons of previous years. The MCA deal would have doubled the dollar amount of the firm's merger activity in 1990 and raised its ranking to ninth.

But the story--and Wasserstein's involvement--were an embarrassing hoax. After further investigation, the contrite
Journal
discovered that it had been duped. Other bankers involved in the MCA deal openly questioned Wasserstein's role. Finally, when the required filings were made with the SEC, listing bankers and their fees, Wasserstein Perella was not cited. This fact the
Journal--
and others--conveyed with thinly disguised glee. "All in all, the incident made the once-fearsome Wasserstein look a little desperate: desperate to be connected to a big, sexy deal; desperate to recapture some of his old reputation; desperate to be seen as a player still," Nocera observed in his
GQ
profile. "Myself, I saw that story and thought, It's over for Bruce Wasserstein. It's amazing, when you stop to think about it, how dramatically the worm has turned on Wasserstein. It was once inconceivable that such a high-profile deal as Matsushita-MCA could go from start to finish without his getting his pudgy little fingers around it."

At this moment, many a Master of the Universe would succumb to the fire hose of criticism and, at the very least, begin to question his faith. Not Bruce. He saw himself as the ultimate Nietzschean
Ubermensch.
He played by different rules from everyone else. He refused to give the naysayers the satisfaction of affecting him. He dug deep into Bruceania and set out to prove his critics wrong. "Neitzsche's whole posit was that there are certain superhumans who are above the fray, above normal constraints," a friend of Bruce's said. "He believes he is that. And so if you believe that, you're not bound by common morality, and you're just incredibly ambitious and impatient and not held back by that." He decided to make some changes.

Bruce separated from his second wife, Chris, and their three children. The family continued to live in their 1030 Fifth Avenue apartment, and he moved around the corner to the Westbury Hotel, off Madison Avenue. At a party in Bridgehampton a few months earlier, he had met Lorinda Ash, a lithe, dirty-blond beauty who was then working for Larry Gagosian, the uber-art dealer. Eric Fischl had even painted her portrait for the billionaire art aficionado Eli Broad, whom she had dated (although the painting was snatched up by a New York collector before Broad could get it). Bruce fell for the much younger Ash hard and pursued her aggressively. "He was very decisive, even about leaving his wife," explained someone who knows both Bruce and Chris. "It wasn't this harangue about being back and forth and 'What do I do?' and 'What do I do?' He's just not a person who tolerates being unhappy." Soon after his divorce was finalized in 1992, he and Ash moved in together, first to East Sixty-first Street and then to 817 Fifth. Although his appetites remained robust, at Ash's suggestion Bruce started exercising, and lost fifty pounds. He took to wearing contact lenses instead of the preposterous eyeglasses that had been one of his goofy sartorial trademarks. Some of his studied schlumpiness appeared to recede. Ash introduced him to hip young artists and their work. But by all accounts, for Bruce art seems to be nothing more than another asset class with which to display his investment prowess. Under Ash's influence, he bought work by many of the artists in the Gagosian stable: Salle, Warhol, Serra, Halley, and Lichtenstein. Before he met Ash, he bought a few Impressionist paintings by Monet and Matisse. Art "is just another acquisition for Bruce," a friend observed. "It is totally the Charlie the Tuna syndrome--'I'm a rich guy, I gotta have class. I gotta have art.'" On the other hand, Bruce has always been enamored of creative people and enjoys spending time in the company of artists. He encouraged Ash to invite artists to dinner or to wrangle an invitation to an artist's studio. At one point in the doldrums of the art market in the early 1990s, Bruce, the lusty contrarian, paid $1 million for a painting by Mark Rothko. From an investment point of view, the purchase was a stroke of brilliance. (The painting is said to be worth $15 million today.)

PROFESSIONALLY, TOO, WASSERSTEIN
Perella began to change. The firm's M&A advisory business had all but dried up, so Bruce focused on trying to resurrect the firm's struggling $1.1 billion LBO fund, which had in it $120 million of the firm's partners' own money. True, early on, Bruce had some signal successes, but the fund lost its $14 million investment in KDI, a swimming pool manufacturer, when the company filed for bankruptcy. Bruce's huge $350 million investment in a British supermarket group, Gateway, was a total loss after the renamed company, Isosceles, went bust. "He did this," a former partner told
Vanity Fair,
"against the advice of all the other partners in the room...all of whom subsequently left the firm." Its $100 million investment in Wickes, a home-building and auto-parts manufacturer, also ended up poorly. IMAX, the giant-screen movie theater chain, floundered. Another disaster was the $80 million or so Bruce lost in Red Ant, an independent record label, which he started from scratch, sold to Alliance Entertainment, and then bought back after Alliance filed for bankruptcy.

Someone who knows Bruce said that his tenure managing the Wasserstein Perella merchant banking fund shows his questionable ability as a fiduciary. "History has shown that when Bruce has been given a charter, he'll abuse it to whatever degree he can," he said. "He'll cross over fiduciary boundaries. He won't cross over legal boundaries." In a Nietzschean way, this makes sense. "Bruce on the investment side has what I would describe as smart man's disease," a former colleague said. "He can never believe he's wrong. And in this business you need to say, 'OK, I'm wrong,' and cut your losses...but he would continue to make larger and larger bets to prove he was right."