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Did Lazard Do Right By Westinghouse?

The Corporation


Westinghouse Electric Corp. knows turbines. It knows motors and meters and connectors. But dealmaking was never its strong suit. Vulnerable as that left Westinghouse in the freewheeling world of real estate, the company found itself on shaky ground in the rough-and-tumble business of junk bonds.

Westinghouse learned a hard lesson about that market in 1991, when it put Westinghouse Credit Corp.'s $1 billion in junk bonds up for sale at the recommendation of Lazard Frres & Co. But the securities were dumped near the bottom of the market. What's more, three former Westinghouse executives charge that Lazard may have pocketed some of the trading profits. "It was reprehensible that they picked off a client," says one of them.

Citing client confidentiality, Lazard will not discuss the matter. "While most of the information you have been fed is incorrect, we will not engage in a rebuttal," says a written response. And Westinghouse downplays the episode. "It was a commercial dispute common in business," says spokesman Ron-ald E. Hart. "It was not a big issue at the corporate level."

KEY MOVE. But some officials who were at Westinghouse at the time have a different view. Selling the bond portfolio was a key part of the strategy to shrink Credit Corp., a plan Lazard helped fashion in February, 1991. The collapse of the junk-bond market had lowered the portfolio's value by about 15%, though it still had operating earnings of $30 million a year. "We left $200 million on the table" by selling rather than waiting 12 to 18 months, gripes a former executive, who says there were signs of a junk-bond turnaround at the time of the sale.

What really irked some Westinghouse insiders back then, however, was their belief that Lazard may have played fast and loose with the trading profits. When the firm had a buyer for a block of bonds, its trading desk would call Westinghouse for approval to execute the sale at an agreed price. But several times in mid-1991, sources say, Lazard then secretly lined up better deals with other buyers without alerting Westinghouse--and gave Westinghouse the lower, quoted price. The Westinghouse executives concluded that Lazard may have gotten at least $600,000 more than it should have.

Eventually, Credit Corp. bond traders detected discrepancies between the sale prices Lazard was quoting and market prices they saw. After a probe, Credit Corp. officials confronted Lazard and asked to review its trading records, but Lazard refused, sources say. In August, Lazard partner Damon Mezzacappa wrote Westinghouse disputing the charges. Credit Corp. wasn't convinced and pressed its parent to pursue the matter, several sources say.

Meanwhile, rumors floated around the bond market. Lazard was embarrassed after an item ran in the Sept. 23 issue of the newsletter Mergers & Corporate Policy. Westinghouse sources say Lazard wanted the matter settled quickly and quietly--and so did Westinghouse. It planned to take a $1.7 billion write-off to cover deteriorating Credit Corp. real estate and wanted Lazard's blessing. Facing a liquidity crisis, Westinghouse was eager to keep Lazard on board for more possible write-offs, though the firm no longer is the lead adviser on Credit Corp. matters.

In the end, Westinghouse agreed to a settlement. Lazard repaid $300,000, according to Westinghouse insiders. To Westinghouse's critics, though, the incident was woefully typical of the company's track record in dealmaking.


In mid-1991, Westinghouse asked Lazard Frres to help sell its $1 billion junk-bond portfolio. Former Westinghouse executives say Lazard traders would get approval to sell a block of bonds at an agreed price. Then, they would find another buyer at a higher price and keep the difference.

Amount of profits Lazard allegedly made:


Amount Westinghouse insiders say Lazard refunded:


DATA: BUSINESS WEEKMichael Schroeder in Pittsburgh

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