The World's Busiest Little Investment Bank

With M&A booming, privately held Lazard is thriving

Once or twice a month for the past eight years, Nicholas Jones, a partner at Lazard Brothers & Co. in London, has sat down with Martin Broughton, CEO of B.A.T Industries PLC, to review and critique the tobacco and financial-services giant's strategy. "It is very helpful to have an adviser like Nicholas," says Broughton. "He takes the emotion and heat out of the chase."

This close relationship between Lazard and B.A.T predates Jones by decades. So it was not surprising that when Broughton agreed last April to merge B.A.T's $17 billion financial-services arm with Zurich Insurance Co., he turned to Lazard, along with Goldman, Sachs & Co., for help.

The European takeover business is booming, and Lazard, a trio of privately held firms in Paris, London, and New York, is dealing up a storm. So far this year, Europe has seen $260 billion in mergers and takeovers, compared with $258 billion in all of 1996, according to Acquisitions Monthly. Of this year's total, Lazard ranks second in Europe, behind Morgan Stanley, Dean Witter, Discover & Co., with $72.6 billion in announced deals, a 19.5% share says Securities Data Co. Worldwide, Lazard is No.4, with $202 billion. It's even thriving in the U.S., ranking fourth with $131 billion in announced transactions.

CONFIDANTE. Currently, Lazard is involved in some of the world's biggest deals (table). While its London bankers hammered out the B.A.T/Zurich combination, Lazard Freres in Paris masterminded a $9.4 billion hostile bid for Assurances Generales de France (AGF) by Italy's Assicurazioni Generali. Meanwhile in New York, Lazard Freres & Co. is helping long-distance carrier MCI Communications get the best deal from a flock of suitors, including GTE, British Telecommunications, and WorldCom.

How does Lazard stay competitive with better-capitalized American rivals? Certainly not by flooding the world with teams of bankers pushing derivatives and other financial instruments. Nor does it use its capital to help with refinancings and other deals. In fact, it has very little capital of its own--about $160 million in London, the only branch that publishes figures. The London unit took in $175 million in fees last year.

Lazard distinguishes itself by providing discreet, unvarnished advice. It almost always prevails in hostile takeovers such as Granada Group PLC's $6.35 billion conquest of Forte hotels in 1996. "We seek to have stable relationships with powerful people," says David J. Verey, London-based chairman of Lazard Brothers. "If there is trust, they will want to open up and share secrets and decisions with us."

Verey argues that Lazard's personal approach to investment banking has been vindicated by the firm's successes. Indeed, one of the firm's strengths is its independence. Verey explains that Lazard isn't interested in greasing deals with its own capital because, he says, it could result in poor advice. He believes that the quest for more capital will either lead a firm to go public or lose its independence in some other way--actions Lazard has consistently managed to avoid.

HEADING WEST. Lazard is also moving to fix long-standing shortcomings. After years of dominating local markets, the London and Paris units are now jumping into merger deals in Scandinavia and the Netherlands. And lately, the three Lazard houses have set up a profit-sharing arrangement to ease international jealousies and encourage global cooperation. Steven Rattner, whom Michel David-Weill, the shrewd Frenchman who controls the group, recently appointed deputy CEO in New York, is trying to establish a stronger U.S. presence. Lazard recently opened an office in San Francisco to chase high-tech deals.

There are some clouds hanging over Lazard's future. First, there is still no clear successor to the 65-year-old David-Weill. And British media conglomerate Pearson PLC might sell its large minority position in Lazard. Yet the firm's partners, who have the right of first refusal, figure Pearson is unlikely to unload a stake that yielded $65 million in profits in 1996.

As he curls up on the couch in his London office, Verey, who made $3.5 million from Lazard Brothers in 1996, says the money is insignificant compared to the thrill of counseling corporate chieftains. Lazard's London bankers may earn less than some Wall Street heavies. But when the job is this much fun, says one top partner, who really cares?

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