Dragging Lazards into the 21st century
News Analysis: Change comes slowly but buying out Pearson is a logical step for the `last great surviving partnership'
Friday 25 June 1999
Michel David-Weill, the current Lazards chairman, said recently that the moves he is now making should have been made a "a year or two ago." They may have been prompted in part by the decision by Goldman Sachs to shed its partnership and go public after 130 years last month.
Yesterday's deal enabling the Lazard partners to buy out, for pounds 410m, their biggest outside shareholder, the media group Pearson is the logical next step in the corporate restructuring announced to the world earlier this month. It remains to be seen whether merely simplifying Lazard's unwieldy structure and bringing the Paris, London and New York firms under one roof will be enough to keep Lazards in an increasingly brutal game. There is an old-world mystique about the firm which seems anachronistic in these days of spreedsheet driven investment banking, and which despite these latest moves, the firm seems in no hurry to shed. Now virtually unique in being a pure advisory firm, Lazards, has longpunched above it weight.
Lazards' structure is a legacy of its history. The original Lazards were three French brothers. Landing in New Orleans in 1848, the three freres Lazard - Alexandre, Simon, and Elie - set up a dry goods company. They moved to San Francisco the following year to take advantage of the gold rush. There they built a successful business throughwool trading, foreign exchange and banking.
In 1852 they set up their first Paris branch. London followed in 1877 and in 1880 Alexandre Weill, a cousin who married into the family, set up the New York firm Lazard Freres and Company. It was the Weills, from whom Michel David-Weill is descended, who were to go on to dominate the firm.
The connection with Pearson goes back to 1919, when S P Pearson & Sons, then a diversified conglomerate, took advantage of new Bank of England rules restricting foreign ownership of British banks to pick up a 45 per cent stake. In 1932, in the slump following the 1929 crash, it raised that to 80 per cent. Financially the partnership has served both parties well. Lazards has delivered Pearson with handsome returns, while Pearson's holding protected Lazards from the grief that rivals like Morgan Grenfell and S G Warburg had to put up with as quoted merchant banks.
In 1984 when the first attempt was made to unify the three branches, the Pearson stake was transferred to a new company, Lazard Partners, which was to end up with a 50 per cent stake in Lazard Brothers, the London firm, and small stakes in the French and New York firms.
For a long time, the existence of three separate houses deeply rooted in their own national cultures had been seen as a strength. But as more and more big corporate deals are cross-border and in a market where being rootless and cosmopolitan seems increasingly the key to success, the disadvantages have begun to outweigh the benefits.
Cooperation has often been more theoretical than real. In private there has been much bitching, particularly between London and New York, with the Brits complaining about overpaid Yanks not pulling their weight and the American grumbling about public school amateurs and the stuffy atmosphere that reigns at Lazards down-at-heel Moorgate offices.
Attempts to foster greater identity of interest by creating one bonus pool for all three firms have backfired. Lazards continues to rack up the deals, but when it comes to the really ground-breaking global transactions like the DaimlerChrysler merger last year or the Olivetti bid for Telecom Italia, some fret that Lazard's name has been conspicuous by its absence. Worrying too, for the firm is the fact that in France and Italy, markets, where what corporate activity there was, Lazards had traditionally sewn up, its pre-eminence is now being seriously eroded by the Americans. Its problems in Italy have been compounded by the breakdown of its relationship with Mediobanca, the secretive Milanese merchant bank which dominates Italian finance.
The severing of ties with Pearson was just a matter of time, particularly after Marjorie Scardino came in as chief executive with a mission to selloff Pearson's non-media interests. But Lazards is a firm where change does not come easily. David Verey, chairman of Lazard Brothers was adamant yesterday that a flotation was out of the question.
"We are the great surviving partnership and intend to remain so," he said. Insiders say that Michel David-Weill would never countenance a sale in any form. And he intends to be around for a very long time.
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