The last tycoons: the secret history of Lazard Frères & Co (92 page)

In Michel's bedroom and the changing room right behind it are more examples of his interest in the erotic. Near his bed is a Watteau. "Also terribly charming because you see that this fellow is relatively aggressively courting her with his hand on her breast and she is a little shy, but not that shy," he explained. "Not protesting, but a little shy. At the same time, Watteau has done the inverse in the background. It's the girl putting her hand on the fellow. It has this mysterious atmosphere of Watteau. One of the things which I adore about French paintings is that all the women look intelligent. In most other countries women painted look stupid. In France, especially in the eighteenth century, they always looked bright." In the changing room, where he also watches television, there is a large Balthus painting of an adolescent girl. "It is of a young girl, knowing she's becoming ugly, and that's the way I describe her," he said. "Certainly, it's not an erotic picture at all, huh? It's a poignant picture." Nearby is an obviously aroused male-nude painting. "That is an erotic one by a surrealist, a German," he said quickly as we turned back to the living room.

THE COMBINATION, IN
a month's time, of Steve's ouster and Michel's successful negotiation with Scardino made it abundantly clear--in case anyone had any doubt--that Michel was firmly back in control of Lazard. Indeed, as part of the deal with Pearson, Michel for the first time laid out his retirement timetable: he would remain CEO of Lazard until 2005, when, at age seventy-three, he would become chairman and appoint an as-yet-unknown successor. "Once you start thinking about retiring, you might as well be retired," he told
Institutional Investor
at the time. "At a time when we are combining the three firms, it would be difficult to replace me because of my knowledge of how the pieces fit together."

Post-merger, he reiterated, finding a new leader would be easier. "It will be whoever is suitable in the eyes of the partners," he said. But despite the bravado about his own importance, he continued to flail around for the next Great Man, even at this time reportedly reaching out to Felix and asking him to return to the firm as the elder statesman. "Michel and I are old friends, and I wish him good fortune, but the subject has never come up," the ambassador told
Institutional Investor
. But that wasn't true. Michel and Felix
had
spoken on more than one occasion, in the ambassador's residence, about Felix returning to the firm. Michel kept suggesting Felix come back to serve on the contemplated supervisory board, a role that Felix found insulting. He declined to pursue Michel's entreaties.

Meanwhile, just how this merger was going to work was beginning to worry the firm's partners. In New York especially, the concern was mounting that the ten-page outline of the proposed merger failed to elucidate how the worldwide profits would be allocated. "There is absolutely abject terror regarding preservation of compensation in New York," explained one partner. But Michel said, "I don't think there is one partner who does not view this as a great step forward." And Loomis urged his partners to relax and let the details emerge in time. "Not to address this would be partnership suicide," he said.

FINALLY, AS THINGS happen in threes, came the most sustained threat of all--this one from outside Lazard and, seemingly, beyond even Michel's octopus-like control. Quietly and with the help of the longtime Lazard partner Antoine Bernheim--described as the "Felix of France"--the French entrepreneur and investor Vincent Bollore, then forty-seven, began, in the late spring of 1999 (just as the deal with Pearson was being finalized and announced), to acquire a large stake in Rue Imperiale de Lyon, one of the four publicly traded French holding companies that over the years Michel and some of his French partners had set up and that, in turn, owned stakes in Lazard. Bollore's assault on Michel's cozy ownership scheme, which would not be disclosed publicly for more than a year, complicated matters terribly for him, and for his control of Lazard. "He's locked in his character and his legend," Bollore said, in taking aim at his foe. "His group may have problems to solve in the future." A London newspaper described the battle as "rather like the Rome city council slapping a demolition order on the Vatican."

Bollore was--and remains--the French equivalent of a 1980s-style corporate raider, but unlike most raiders, he also controls his own corporate empire. The indirect investment in Lazard was but one of several Bernheim had recommended Bollore make in European private investment banks, the others being in Rothschild and Mediobanca. Apparently, Bernheim encouraged Bollore in his activities because he felt slighted that Michel did not rise to his defense when Mediobanca deposed him as chairman of Generali, the Italian insurer, in April 1999, and because he did not appreciate that Michel failed to acknowledge his contributions to the firm at the 150th anniversary party at the Metropolitan Museum in June 1998. For his part, Michel denied any rift with Bernheim. "It is true that Monsieur Bernheim likes and is close to Monsieur Bollore," he told a London newspaper in November 2000. "This being said, Antoine Bernheim has been totally faithful to the firm and me."

Bollore's unprecedented bet on shaking up the Lazard holding companies in the summer of 1999 was, first, born of a desire to make a lot of money. He had figured the share price of the holding companies valued Lazard at an incredible 75 percent discount to its book value, an arbitrage opportunity par excellence. As a secondary matter, Bollore had focused on Lazard's arcane corporate governance, just as he did with both the Mediobanca and the Rothschild investments: as the European Common Market continued to evolve and mature, the rules relating to corporate ownership would begin to more closely resemble the far simpler paradigm in the United States. Few corporate structures were more convoluted than Lazard's, and by buying into a corporate stack that resembled nothing as much as wooden Russian
matryoshka
dolls, he intended to be a catalyst for change. His first desire--to make a huge profit on these shares--would be achieved in part, he hoped, by becoming such a nuisance to Michel that the older man, true to form, would have to figure out a way to have him go away.

These were smart bets, for that is precisely what occurred. For about EU300 million, over time Bollore accumulated a 31 percent stake in Rue Imperiale, which indirectly owned a right to 15.8 percent of Lazard's profits. But as it turned out, several years before Bollore made his investments in Rue Imperiale, Jon Wood, an even cleverer Englishman responsible for proprietary trading at Union Bank of Switzerland, had the very same idea to buy into the publicly traded Lazard holding companies. "Michel David-Weill and his cronies have held back corporate France for years," Wood said. "They really are awful, egotistical people who wouldn't give money to a person to buy a loaf of bread." As a result, UBS, which had kept quiet about its Lazard investments until Bollore came along, owned significant percentages of three of the Lazard holding companies as well. Wood said Bollore was "a very interesting character and he certainly supports the concept behind what we're trying to do." Wood began pressing Michel very hard behind the scenes to do something to streamline the structure, by either merging some of the companies or buying back stock. He was on a crusade. "We have a mission, some might say, to see all of the anomalies you have in Europe just disappear, with shareholders getting a fair price," Wood told
Forbes.

For his part, Bollore started buying shares in Eurafrance, another holding company, to complement the ones he already owned in Rue Imperiale. Feeling besieged, Michel invited Bollore to Sous-le-Vent and told him to sell his position immediately as it was a bad investment. More than a little piqued, Michel also added ten years to a voting agreement between himself and the founding four families of Lazard through Societe Civile Haussmann Percier, another, private holding company. "I'm not impressed by agreements," Bollore said. "You can break an agreement." Rather than being intimidated by Michel, Bollore sensed additional opportunity and bought more shares in Rue Imperiale. He remarked that he was determined to "break up the Lazard empire and sell the parts to the highest bidder."

Michel met with some of the institutional investors during the summer of 2000. "He was unhelpful and incredibly arrogant," one who was there told
Forbes
in September 2000. "He lit up a humongous cigar and puffed it in our faces for half an hour. He really dismissed us as totally unimportant--and we had been large shareholders in his companies for years." Michel also wrote a personal letter to Marcel Ospel, the chairman of UBS, complaining about Wood and asking him to rein in the trader. Ospel declined to heed Michel's suggestion. Sophie L'Helias, a well-known French shareholder activist with clients that owned shares in the Lazard holding companies, put it bluntly to
Forbes:
"The empire is not being ruled justly or fairly. David-Weill and his henchmen use holding companies to enrich the partners at the expense of the shareholders."

By November 2000, Michel, under pressure to resolve the Bollore matter, summoned him again, this time to a breakfast in Paris. "He was not very happy," Bollore said of the meeting with Michel. "The fact that I could dare buy those shares was unbelievable to him." At the breakfast, Michel discussed with Bollore a plan to have Eurafrance merge with Azeo, yet another Lazard holding company, to create Eurazeo (as happened). Michel's view of the breakfast, which he attended at Bernheim's suggestion, was that "Bollore bought shares, which was his right obviously. He bought quite a few shares and had no contact, while doing so, with me or the management of Rue Imperiale."

Having taken the measure of Bollore, and realizing his own weak position, Michel called in his friends from the French establishment to help him resolve the matter. First, Eurafrance offered to buy out Azeo at EU90 a share, almost double the price Azeo had been trading for a year earlier. Second, Michel contacted the mammoth French bank Credit Agricole, with which Lazard, through Edouard Stern, had established CALFP, the derivatives joint venture. In an act some described as "greenmail," at Michel's urging, Credit Agricole bought the Rue Imperiale stake from Bollore, at the end of November 2000, for EU595 million, a profit for the raider of nearly EU290 million in eighteen months. By getting rid of Bollore, "Michel has pulled off a remarkable coup," his partner Adrian Evans confessed. Others praised Bollore's moxie. "A genius is someone who knows how to seize opportunity," Bernheim said of his client. Added Bollore himself: "Let's say that no one had ever dared to behave so rudely to David-Weill until I came along." For his part, Wood, who had criticized the proposed valuation of the Eurafrance and Azeo merger, agreed to a truce with Michel after Michel agreed to have Eurafrance buy back some of its own shares in an effort to boost its share price. But UBS did not participate in the Credit Agricole deal and reportedly was quite upset to have been abandoned by Bollore.

"UBS now finds itself somewhat alone for going into battle because Michel David-Weill no longer has the pressure to simplify the structure," said one research analyst. Nevertheless, courtesy of Michel and Lazard, Wood and UBS had a pleasant Christmas bonus in 2000 of a gain of more than EU250 million, representing, incredibly, one-third of UBS's pretax quarterly profits. "It is not often that investment banks give each other presents, but this is a nice bonus from Lazard," said one UBS observer. Added Wood: "Michel is only getting what he's been giving to other people for the past thirty or forty years." He continued, "We had to pinch ourselves. We couldn't believe how easy it was to knock Michel off his perch," and then in disgust he added, "I must admit that Michel is a very sad individual. He's very chippy. He's arrogant. He's dishonest. He's everything that is bad about French commerce. He's awful, just awful. He's thrown away a wonderful opportunity. It's ironic that Lazard, which had always given advice on how to look after all shareholders, now wouldn't do it." Wood has since left UBS to start his own hedge fund.