Lazard Ltd., the largest independent merger adviser, surged in New York trading after Nelson Peltz’s Trian Fund Management LP disclosed a stake of about 5.1 percent and said the company is “significantly undervalued.”
Trian controls about 6.3 million shares, Peltz’s firm said today in a statement, making it the largest stakeholder according to data compiled by Bloomberg. A fee-based model and plans to focus on margin improvement make Bermuda-based Lazard attractive compared with rivals in more capital-intensive businesses, Trian said.
“Successful execution of Lazard’s plan could result in the company increasing earnings per share to slightly more than $3.50 in 2014,” Trian said in the statement. “This would imply a target value per share more than double the current price.”
Lazard advanced $1.16, or 5 percent, to $24.25, the most since Dec. 22. The shares have dropped 7.1 percent this year.
Peltz previously took stakes in companies and pushed for changes to boost their share prices. He made investments in consumer-products companies such as Kraft Foods Inc., ketchup maker H.J. Heinz Co. and luxury retailer Tiffany & Co., and made a foray into financial services by joining Legg Mason Inc.’s board in 2009.
Lazard Chief Executive Officer Kenneth Jacobs, who has run the firm since 2009, is transforming it from a private partnership to a “transparent, shareholder-friendly” company, Trian said in a slide presentation. He’s planning to widen margins, return capital to shareholders and improve governance and transparency, Trian said.
Cost cuts and revenue growth could lead to almost a 75 percent increase in earnings before interest and taxes by 2014, Trian said in the presentation. Lazard posted full-year profit of $179 million in 2011, or $1.31 a share, compared with $281 million, or $2.06, a year earlier. The average estimate of three analysts surveyed by Bloomberg is for adjusted earnings per share of $2.61 in 2014.
“Trian Partners are experienced and successful investors, and we appreciate their confidence in Lazard’s franchise and strategy,” Judi Mackey, a Lazard spokeswoman, said today in an e-mailed statement. Trian declined to make Peltz available for an interview.
The financial crisis reduced compensation, leading bankers to move to independent advisory firms, according to the slide presentation. Larger Wall Street companies, including Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp., are also facing regulatory “distractions” and “impaired brands,” Trian said in the presentation.
Lazard shares are trading at more than 8 times tangible book value, a measure of what investors are willing to pay for a company’s equity after removing intangible items such as goodwill and brand names that would have little value if the company went out of business. Goldman Sachs and Morgan Stanley are among firms trading at less than tangible book.