The last tycoons: the secret history of Lazard Frères & Co (81 page)

Another blunder occurred when Michel asked Edouard to head up the effort to consolidate, into London, Lazard's capital markets business in all of Europe. Edouard offered the job as head of capital markets in Europe to two different people, Anthony Northrop, a longtime managing director in Lazard's London office, and Bernard Poignant, an outside recruit. Poignant got the job, and when Northrop resigned, the Lazard Brothers team was extremely peeved. "I had to clean up Stern's mess," Mezzacappa said. "It's clear that Stern had misled them both slightly." He was also said to have made unauthorized bonus promises on the sly to his cronies. Another time, after Lazard's distressed trading debt desk in New York had accumulated a very large position in the bonds of Eurotunnel, the oft-bankrupt builder and owner of the Chunnel between London and Paris, Stern decided to cause mischief by seeking to use his connection to the Eurotunnel CEO to get the firm hired as Eurotunnel's financial adviser in bankruptcy--an obvious conflict. Stern then called the distressed-debt trader and offered to abandon his effort to get the firm hired if he personally could, as a principal, get a cut of the firm's action in the Eurotunnel distressed debt (the idea is to buy the debt at enough of a discount to par value and hope that it trades up over time). Deeply offended by Stern's request--which had the odor of bribery--the trader promptly called Michel and told him of the conversation he had with Stern. Michel took care of Edouard on that one. Still, Mezzacappa, for one, had been impressed with the deal Stern negotiated with Credit Agricole. "Stern negotiated a hell of a deal with Credit Agricole," he told
Forbes.
"And he's gotten quite a lot of credit for that. He's been very successful doing what he's doing. But if he's ever going to run this firm, he's got to mellow out."

After two years in New York, Michel decided Edouard should move to Paris and have the experience of working at Lazard there. This was consistent with Michel's pattern of giving a number of his young talented partners the chance to work in different countries over time. But the fallout from that decision was immediate: the first casualty was a young, ambitious French partner named Jean-Marie Messier. In the late 1980s, Michel had recruited Messier, then all of thirty-two, as a partner at Lazard from his position as the senior privatization adviser to Edouard Balladur, the French prime minister. Messier's arrival signaled to the younger generation at Lazard in Paris that there was some hope of breaking into the very restricted ranks of the Paris partnership, which had long been dominated by a politburo of the old warhorses Bernheim, Guyot, and Bruno Roger. Messier spent some time in New York before moving back to Paris and was very successful, very quickly. There was talk inside Lazard that he could be the One. Some at Lazard in Paris saw him as the second coming of Andre Meyer, the kind of brilliant outsider that the David-Weills had always encouraged to become part of Lazard and whose immense talent could lead the firm into the future.

Messier was dubbed "le golden boy" and "a very smooth killer." Michel called him "the best merchant banker of his generation." When Messier returned to Paris from New York, he established a $300 million leveraged-buyout fund called Fonds Partenaires, with money from both Lazard partners and limited partners. It was the largest LBO fund in Europe at the time. The fund was successful, most notably with its 1992 investment in Neopost, the French equivalent of Pitney Bowes. Neopost went public in 1999 at EU15 a share and now trades at around EU82 per share. Over time, in addition to his principal investing work, Messier became one of the leading young M&A advisers in France. "On the advisory front, he was a genius," recalled Patrick Sayer, who worked for Messier at Lazard on both principal deals and advisory deals. Sayer recalled Messier's brilliance in convincing the Neopost bank lenders to give the company more time to solve its financial problems early on--a decision that worked out marvelously. Messier's only flaw at the time, his former partners said, was his chronic inability to return phone calls. This, of course, was a violation of one of Andre's and Michel's cardinal rules of always being available. "Which really proves that he was very thorough and engaged in what he was doing, a little to the exclusion of the other things that he should be doing," Michel said. "Which for a banker is an inconvenience. Because a banker, again, is at the service of his clients and he cannot ignore his clients to the benefit of one client who he's working with at the moment. That was his mistake. If I have to say, professionally, his drawback was that one. Otherwise he was one of the best bankers that I've met." The Jean-Marie Messier Award is given annually to the Lazard partner deemed the worst at returning calls.

But within weeks of Stern's arrival at Lazard in Paris in 1994, Messier called it quits. Many partners are certain that Edouard's arrival convinced Messier the time had come to leave Lazard because his ambitions to run the firm one day could not be achieved in the presence of Michel's son-in-law. But Michel is not so sure. "One can debate," he said, "and I don't have the answer. And I would guess that Mr. Messier doesn't have the answer, either, whether the presence of Stern was very important, important, or not important in his decision to leave the firm. But clearly, again, it's the syndrome of succession. As soon as people have the feeling that there will be a succession, people who would normally cooperate nicely begin to distrust the other ones, saying, 'Ha, there is a chance it's him and not me.'"

Michel and Messier talked about Messier's decision to leave the firm for several weeks. It became clear to Michel that Messier had it in his mind to run the firm. "Which I should have known, but I didn't," he said. "But it didn't shock me, because he was bright enough and good enough." Michel suspected, though, that Messier may have been too French to be the one to run the firm globally. "It's important to have somebody Americans relate easily to, and Messier I didn't see as one which Americans related to easily," he said.

Just as Messier's arrival and success had been an inspiration to the younger bankers at Lazard, his abrupt departure broke their hearts. "At one point, Michel had to make a choice between Edouard Stern, who was the son-in-law, and Messier, who was a banker and a good one at that," recalled Jean-Michel Steg, a former Lazard partner who now runs Citigroup in France. "For me, that was the end, I knew I was going to leave. It's now clear I am working for a family. They're choosing the dynastic path rather than the best-qualified banker for establishing an advisory firm that will survive." Said another French partner about Lazard Paris after Messier's departure: "The partners there look like those old photographs of the aging Soviet leaders watching the May Day parades."

As predicted, Edouard was proving to be quite a handful. Nevertheless, despite his not being a traditional M&A adviser, his amazing intellect proved invaluable once he arrived in Paris. In the wake of Messier's departure, he helped resurrect the Paris franchise by bringing in a couple of big deals with important clients. He secured the mandate from the French government for Lazard to sell MGM, the movie studio, which Kirk Kerkorian then bought for $1.3 billion. And he advised L'Oreal on its $754 million acquisition of Maybelline from a buyout fund controlled by Bruce Wasserstein. He also had been the lead banker at Lazard in the privatization of Pechiney, a French aluminum company. "At first there was a lot of initial skepticism about Edouard just because he was Michel's son-in-law," one partner mused. "Then he had a huge amount of success in Paris commercially, so, generally speaking, people were very respectful because of that."

The firm started indulging Edouard--what choice did it have?--in his passions for private equity, the Far East, and Lazard's unsuccessful foray into derivatives. Michel appointed Stern to a three-man oversight committee responsible for investing no less than $15 million a year of the firm's and partners' money directly into private equity. Felix even nominated Edouard to be part of the firm's executive committee. Still, in the French press, Edouard was known as
"le gendre incontrolable,"
the ungovernable son-in-law.

At the peak of his influence at the firm, in November 1995, Edouard was the subject of a profile in
Forbes
by the former Lazard financial analyst Kate Bohner Lewis. They had dinner together at the ultra-elegant Restaurant Laurent, near the presidential palace in Paris. When Bohner Lewis asked Stern about the incident with his father and the family's bank, Stern uttered his famous mantra, "I just detest incompetence," before adding for good measure, "My vice is I'm impatient--and my bad temper." He also told her that his ruthlessness was a key to his success. "It is not enough to be born with a good name," he said. "I have been sometimes brutal in my life. I regret that only because I have created an almost unchangeable image of myself to others. That is life. I have to live with it." Despite all the broken glass that Edouard's antics had created at Lazard, Michel defended him in the
Forbes
article. "I think everyone exaggerates the so-called animosity toward Edouard," he said. "I think Edouard is just the type of person who
enjoys
thinking he is disliked."

Although there was no mention of Stern being a successor to Felix during Felix's dalliance with the Fed--when there was much public speculation about what would happen if Felix finally left Lazard--the subject of Stern as a successor to Michel was part of Andrews's "Felix Loses It" piece. There was a picture of the menacing Stern seated in a conference room at Lazard in Paris, underneath a portrait of a Lazard founder. Felix, though, said he doubted Edouard would be the One. "I don't think Edouard will run the firm," he told Andrews. "Michel thinks it's important to have him around, as a continuum after Michel leaves, but I don't think he wants him to run the firm." Felix also added during his interview with Andrews: "Edouard is a nasty piece of work." An unnamed man said that Michel had asked the partners about Edouard and had received a blunter message: "If he elevates Stern, there are many, many partners in New York who would leave."

While it seemed certain to many at Lazard that Michel was positioning Edouard to be his successor, his impatience and impertinence were leading him down a path of self-destruction. First, it was around this time that his marriage to Beatrice started to crumble. He was said to have had numerous affairs. Although he denied it, Michel supposedly told one of his partners, "Beatrice would be better off if she divorced Edouard." While he was running Paris, a number of up-and-coming younger partners quit in his wake. A whole generation of younger future leaders in Paris left from a combination of Edouard's style and the ongoing refusal of the Parisian old guard to relinquish control or access to clients.

While Stern was running Paris, he hired Anne Lauvergeon, then thirty-seven and a former economic adviser to the French president, Francois Mitterrand. She spent a few months working in New York and became a partner in Paris in January 1995. She was the only woman partner in Paris and one of only four female partners in all of Lazard. A year later, the CEO of Pechiney, the newly privatized French aluminum giant, asked Lauvergeon to join the company's board of directors. Such a request to a banker is considered an honor, especially for such a young partner. Edouard, though, was incensed. He had been Pechiney's adviser, not Lauvergeon, and he thought he deserved the board seat.

Some believe that Michel was behind the selection of Lauvergeon as a Pechiney director, knowing full well that he had found his son-in-law's breaking point and the choice would infuriate Edouard. He was right. And the "Cobra," as Edouard's colleagues in Paris called him, was ready to strike. In his mercurial way, he fired Lauvergeon in November 1996, initiating a series of confrontations with Michel that led to Edouard's rapid downfall at the firm. Just after his blowup with Lauvergeon, news of the fight began to seep into the press in Paris. During an interview with
Le Monde,
Michel referred to the matter and praised Lauvergeon. "Ms. Lauvergeon's professional and personal qualities, since her arrival at the house of Lazard, have made an appreciable and appreciated contribution to the firm," he said. The
Times
picked up the story on November 13 and reported, to firm denials, that Edouard was on his way out of Lazard after "a furious dispute" with Michel in New York the previous week.

Accounts of what transpired between the two men differ, but the gist is that Michel was upset with Edouard for firing Lauvergeon unilaterally and blabbing about it throughout Paris for ten days before flying to New York to try to make amends with Michel. At that fateful meeting in Michel's New York office, Michel told Stern to "leave Lauvergeon alone." Stern then erupted. "Either I am going to be the boss or I am not," he reportedly said. "You picked me to run this firm, and if I don't, I am going to go." Another version of the meeting, one partner recalled, had Edouard telling Michel: "I want you to retire. I want to run the firm. I've got this position in Paris. You can't fire me, and I'm just not going to listen to you anymore. I'm going to keep running Paris." Michel remembered Edouard coming into his new office at 30 Rockefeller Plaza and attempting the Thanksgiving putsch. "I treated him like my son," Michel said. "He treated me like his father!"

Some Lazard partners have speculated that part of the impetus for Edouard's attempted overthrow was that at that time Michel was ill. He didn't look well. He wasn't around much. But Michel denied any illness. Still, Lazard partners wondered often about Michel's health. When he would come back from Paris after a few weeks away, partners in New York would go into one another's offices and chat: "Have you seen Michel? I just saw him. He really doesn't look well. What do you think?" He never looked particularly healthy. He often looked pale and blotchy. He put butter and salt on his baguettes. He inhaled his ubiquitous Cuban cigars. He never exercised. His tight-fitting shirts often revealed his stomach rolls. He once broke his arm after he slipped off a wood gangplank, covered with wet straw, leading from the yacht he was on traveling down the Nile. "Michel does know a lot about medicine," Loomis observed wryly. Once, when Loomis had a cold, Michel told him: "You know what you need to do? You need to smoke cigars." Loomis took his advice. But he still didn't feel much better. And he told that to Michel when he saw him the next day. "Oh, you have to do it for a week," Michel responded.