Nor were its conclusions anything but a strident--often gratuitously so--indictment of accumulated sins. "TWX"--Time Warner's stock symbol--"is at the center of the storm that has and will continue to jolt American industry," the report stated. "This is the TWX story. It is a difficult story to tell because the history and performance of the Company has been skillfully enshrouded in the fog of one of the largest public relations efforts in American industry. The spin is generated by scores of divisional people, over 30 corporate image executives and a series of outside public relations firms. Success is heralded as triumph; failures are trumpeted as success. A corporate mythology is spun and is largely accepted, unchallenged by the media. Some facts are simply obscured.... It is now time to begin to lift the fog." To raised eyebrows, Bruce blamed Time Warner management for creating a "corporate inferno" that immolated at least $40 billion in shareholder value through a combination of, among other things, "bloated overhead" (evidenced by the company's new corporate headquarters at Columbus Circle and its fleet of corporate aircraft) and a "history of ineffectual deal execution" (for instance, losing the acquisition of AT&T Broadband to Comcast and selling Warner Music to a private-equity consortium for far less than it later proved to be worth) that allowed competitors to "take advantage of TWX." "The Lazard Report" did betray Bruce's ongoing sensitivity about his role--or lack thereof--in the disastrous AOL-Time Warner merger when he directed the Lazard team to footnote the utterly irrelevant fact that Wasserstein Perella was not the only Wall Street firm to claim credit for the AOL-Time Warner merger without actually working on the deal.
At the St. Regis, Bruce spoke first and articulated the Lazard solution. "Time has not been friendly to Time Warner over the last three years," he said. "The time to implement change is urgent." In addition to initiating a $20 billion program of share repurchases and cutting costs, Bruce recommended--as scripted--that Time Warner break itself up into four separate publicly traded independent companies. "There are no compelling reasons today for these businesses to remain together," he said. Instead of promised synergies from the businesses all being under one roof, "dis-synergies" have resulted, with the market now "placing a substantial discount on the value of the underlying assets." "The Lazard Report" stated that the implementation of Bruce's plan would lead to an increase in the Time Warner stock price to between $23.30 and $26.60 per share, from around $18. If that proved to be true, at the midpoint--around $25 a share--Time Warner's stock would have increased nearly 40 percent, and Lazard's total fee would be in the vicinity of $55 million, right up there with the largest single M&A fee ever paid ($60 million to Citigroup for its advice in the AOL-Time Warner deal). "If Dick Parsons indeed has the secret super-spicy sauce to deliver and generate value, we all say, 'Hallelujah' and 'God Bless,'" Bruce said in conclusion, attempting humor.
The Lazard brethren in attendance were positively giddy after the presentation. "What do you think of the new Lazard?" Ken Jacobs crowed to a former Lazard banker in the audience.
Reaction to the report--and its theatrical presentation--was swift. It "landed with the deafening thud of a doomed Broadway play," opined the Times's media columnist David Carr. Added a Wall Street analyst at Deutsche Bank: "We were disappointed that nothing really new came out of their presentation or their report." Some even suggested that the Lazard analysis was fundamentally flawed because it had ignored the tax consequences of splitting the company into four pieces and landed "in the equivalent of the remainder bin before it had a chance to reach store shelves." Naturally, Bruce denied that he or Lazard had made any analytical errors. "Taxes fully understood," he e-mailed Ken Auletta at The New Yorker.
Regardless, Time Warner's stock fell 1.1 percent after the report was released. For his part, Parsons--beginning to sense Icahn was quickly losing momentum--said he would take the time to study Lazard's recommendations and, to that end, announced the hiring of both Goldman Sachs and Bear Stearns to provide him with strategic advice in deciding how to respond to Icahn's salvo. The media started gearing up for "what may turn out to be the biggest proxy fight in history" and an "RJR-style fee fest," a reference to the hundreds of millions in fees Henry Kravis paid to bankers, including Wasserstein Perella and Lazard, in the 1989 battle for RJR Nabisco.
Ten days later, it was all over. By themselves, in the days following February 7, Icahn and Parsons reached a face-saving compromise. Icahn knew he was beaten, at least at this juncture. Time Warner would remain a conglomerate with Parsons as its leader. The company acceded to Icahn's desire for a timely $20 billion stock buyback and an additional $500 million cost-reduction program. Icahn would also be able to consult with Parsons on the appointment of two new independent directors but not be able to appoint any himself. The initial news of the settlement sent the Time Warner stock up to just over $18 a share, but then fell to less than $16 a share. "No one who really has been around this space for any period of time believed that Carl had any answers that were novel or likely to result in the stock moving up," Parsons told a reporter on the eve of Time Warner's May 2006 annual meeting. (By early December 2006, TWX was trading close to $20 per share.)
Bruce's brief and embarrassing high-profile gambit on Icahn's behalf had revealed just how far the "new Lazard" had strayed from the subtle and powerful shadowy operator that had long comprised the firm's complex genome. "For reasons that remain inexplicable," Andrew Ross Sorkin wrote in the Times after the compromise had been reached, "Mr. Wasserstein assumed the role of activist investor himself." Sorkin then canvassed Wall Street opinion to see how much reputational damage Bruce and Lazard had suffered, especially since only a month before Bruce had told Sorkin he considered himself "the trustee for the future" of Lazard. "Had he won, it would have been a different story," Sorkin discovered. "Mr. Wasserstein would have again proved himself to be the smartest guy in the room and beaten the odds. But in an advisory business based on demonstrating good judgment, he proved in this case, he didn't have much."
ACKNOWLEDGMENTS
I spent almost six years at Lazard Freres in New York, in the banking group--beginning just after Steve Rattner's arrival in April 1989--first as an associate and then, after a promotion, as a vice president. From the outset, I knew I was part of something very special, as the firm was then perhaps at the height of its substantial power. As lustrous as it was for Kim Fennebresque to tell people he was a partner at Lazard, it was equally lustrous, although far less lucrative, to be able to say you worked there at all--even as a mushroom in the banking group.
Still, I never once thought that I would one day write this book. After all, I was now an investment banker, and my journalism days were a thing of the past. Accordingly, I never made a single note about my impressions of Lazard, for the simple reason that I was kept far too busy on a quotidian basis to pause and reflect on what was transpiring around me. Nevertheless, the ethos of Lazard could not help but penetrate my inner recesses, as it had so many before me.
There are many, many people whose kindness and generosity helped to make possible a book of this scope and ambition. At the outset, I had a certain degree of trepidation regarding how my former colleagues--the most senior of whom were now my main characters--would react to my efforts to write this story. But I was more than a little bit surprised and a lot pleased to find them generally receptive to helping me. And so I extend a word of thanks to them--especially to Michel David-Weill, Felix Rohatyn, Steve Rattner, Bill Loomis, David Verey, Bruno Roger, Steve Golub, Ken Wilson, Damon Mezzacappa, Jerry Rosenfeld, Nat Gregory, Ken Jacobs, and Kim Fennebresque. Thanks are also due to Patrick Gerschel, Vernon Jordan, Arthur Sulzberger Jr., Pete Peterson, and Ralph Nader--for being so generous with their recollections, insights, and opinions. Of course, there were at least a hundred other people in England, France, and the United States who made themselves available to me during the past two years and whose contributions were no less essential. For any number of reasons, it is preferable not to thank them in this forum. You know who you are, and I a
m most grateful for your help. To spend so many hours with people of such intelligence, wit, and nuance was one of the singular pleasures of this project. As was his prerogative, Bruce Wasserstein turned down my repeated requests to be interviewed.
One of the enduring myths about Lazard is the firm's penchant for secrecy. While this may have been true during the Andre Meyer era, once Felix became an accomplished banker and public figure, the number of stories about him and the firm ratcheted up exponentially, providing a treasure trove of information. There are at least five published books about Lazard, from Cary Reich's trailblazing Financier, published in 1983, to Martine Orange's Ces Messieurs de Lazard, published in 2006. There is also Guy Rougemont's unpublished history, which one can only hope will see the light of day. It has been my good fortune to have access to a number of sources of information about Lazard and its top bankers that heretofore, for whatever reason, had lain fallow. Among these are the insightful and revealing diaries kept by Adrian Evans during his tenure on Lazard's executive committee. For access to Evans's invaluable musings during this crucial period, I want to thank both David Verey and Adrian's widow, Ingela. For access to the hundreds of letters Frank Altschul wrote on a regular basis before and after World War II to his partners all over the globe, I want to thank Tamar E. Dougherty, the curator of the Herbert H. Lehman Suite and Papers in the Rare Book and Manuscript Library at Columbia University. Simon Canick, the head of public services at the Arthur W. Diamond Law Library, also at Columbia, provided me with the essential direction needed to uncover numerous public records and congressional testimonies that proved so useful in understanding Lazard's involvement in the ITT-Hartford fiasco as well as Felix's ongoing role in trying to influence public policy. Also invaluable with regard to understanding what really happened between Lazard, Mediobanca, and ITT were the thirty-four boxes of unorganized, unindexed documents that the Securities and Exchange Commission agreed to let me have access to, thanks to the Freedom of Information Act. I am doubly indebted to the SEC in Washington for showing remarkable flexibility and sense by agreeing to ship the documents, at my expense, to New York, so that I could peruse them unfettered, and pressure-free, for many months in the SEC's downtown Manhattan office in the Woolworth Building.
John Gardner, the deputy inspector of companies at the U.K.'s Department of Trade and Industry, helped me to understand just how close Edouard Stern came to the line in making his investment in the Minorco-Consolidated Gold deal. After my inquiries, Wendy Galvin at the Bank of England publicly released for the first time a cache of secret documents relating to how the Bank of England accomplished its bailout of Lazard in London and Paris during the 1930s. Laurie-Ann Paliotti at the Brown Daily Herald provided invaluable research assistance, as did both Breeshna Javed and Jonathan Dobberstein at the Michigan Daily. I also received invaluable research assistance from Nis Kildegaard.
As a professional matter, there were any number of people inside the confines of Doubleday without whom I would be nowheres, as the Lazard partner Steve Golub is wont to say. It would be impossible not to put at the very top of this list my friend Steve Rubin, the publisher of Doubleday, who from the outset has been the tireless champion not only of this book but also of the satisfaction that comes from reinventing oneself professionally. From there, in alphabetical order, I would like to thank Bette Alexander, Barb Burg, Maria Carella, Dianne Choie, Stacy Creamer, Melissa Ann Danaczko, David Drake, Jackie Everly, John Fontana, Luisa Francavilla, Phyllis Grann, Kendra Harpster, Suzanne Herz, Christine Pride, Louise Quayle, Richard Sarnoff, Ingrid Sterner, and Kathy Trager. Quite simply, there would be no The Last Tycoons without my editor, Bill Thomas, who not only had a clear vision of the narrative from the outset but also managed to sustain that clairvoyance through hours and hours of tireless editing, including while on the Chunnel and in a London hotel room. As far as I can tell, his only respite came while watching his beloved Yankees lose to my beloved Red Sox.
Personally, I have been sustained throughout this monastic process by a peerless cast of friends and relatives, who were unparalleled purveyors of succor. Among them in close to alphabetical order were Kurt Anderson and Anne Kreamer, Jane Barnet and Paul Gottsegan, Charlie and Sue Bell, Clara Bingham, Bryce Birdsall and Malcolm Kirk, Brad and Mary Burnham, Bryan Burrough, Jerome and M. D. Buttrick, John Buttrick, BVD Miles and Lillian Cahn, Mike and Elisabeth Cannell, Alan and Pat Cantor, Peter Davidson and Drew McGhee, Tom Dyja and Suzanne Gluck, Don and Anne Edwards, Stuart and Randi Epstein, Esther B. Fein, Bob Frye and Diane Love, Ann Godoff and Annik LaFarge, Larry Hirschhorn and Melissa Posen, Ted Gup, Tod Jacobs, Stu and Barb Jones, Michael and Fran Kates, Jamie and Cynthia Kempner, Jeffrey Leeds, Jeffrey Liddle, Tom and Amanda Lister, Frank and Katherine Martucci, Patty Marx, Steve and Leana Mechanic Hamilton and Katherine Mehlman, David Michaelis, Gemma Nyack, Dan and Sally Plants, Dudley Price, David Resnick and Cathy Klema, Andy and Courtney Savin, Jim and Sue Simpson, Jeff and Kerry Strong, David Supino and Linda Pohs, Kit White and Andrea Barnet, Jay and Louisa Winthrop, Mike and Shirley Wise, Tim and Nina Zagat, Rick Van Zijl--and not the least by far, my fellow Red Sox fan in exile Esther Newberg. I also want to thank my in-laws, the Futters, and especially my recently deceased father-in-law, Victor Futter, a saint of a man who loved the written word and would have passed many a happy hour, I believe, reading this book. My parents, Suzanne and Paul, as well as my brothers, Peter and Jamie, and their wives and families, all were immensely supportive of me through this sometimes perilous passage. I am eternally grateful to them. I would also be remiss if I failed to mention the wisdom of my legendary journalism professor, Mel Mencher, who taught me, some twenty-five years ago, "You can't write writing, you can only write reporting." And a special word of thanks and appreciation needs to go to my longtime mentor, Gil Sewall, who has been nourishing my intellect for thirty years and who took the time out from his precious summer to read and reflect on this book in manuscript form.
It turned out that my literary agent, Joy Harris, is both the dearest friend and my closest professional advocate. Like Bill Thomas, she saw early on what this book might be and worked tirelessly to make it so. My unending thanks and considerable love go out to her.
Finally, and most emphatically, neither this tome nor my life would have much meaning without the unalloyed, unyielding, and unequivocal love and support of my wife and muse, Deb Futter. In so many ways, over so many years, she has been there for me. She has also been the most dedicated and amazing mother to the other two loves of my life, my nearly perfect sons, Teddy and Quentin, whose only discernible flaw is that they are inveterate Yankees fans.
Needless to say, any errors in fact, of omission, or of commission are my responsibility alone.
NOTES
Abbreviations
AE
Diaries of Adrian Evans
BG
Boston Globe
BOE
Bank of England Archive
BW
Bruce Wasserstein
CC
Celler Commission
FAP
Frank Altschul Papers. Herbert H. Lehman Suite and Papers, Columbia University, Rare Book and Manuscript Library, New York
FGR
Felix George Rohatyn
MDW
Michel David-Weill
NY
The New Yorker
NYSE
New York Stock Exchange Archive
NYT
New York Times
SEC
Securities and Exchange Commission Files
SJC
Senate Judiciary Committee 1972 Hearings on Richard Kleindienst Nomination as Attorney General
SR
Steven Rattner
WL
William Loomis
WSJ
Wall Street Journal
Chapter 1. "Great Men"
"It is a great honor": FGR testimony before the Senate Foreign Relations Committee, July 31, 1997.
Felix tries to parse:
FGR interview, December 17, 2004.
In his memoir: Robert E. Rubin and Jacob Weisberg, In an Uncertain World (New York: Random House, 2003).
"I thought": Ibid., p. 88.
"a group of important": Ralph Nader and William Taylor, The Big Boys: Power and Position in American Business (New York: Pantheon, 1986); and Andy Serwer, "Can Lazard Still Cut It?" Fortune, July 20, 1998.
"the interstitial man": Ibid., p. 196.
"Felix is enveloping": Ibid., p. 198.
"Oh, because we are": Ibid.
"the Teflon investment banker": Ibid., p. 216.
"But he accomplished": NYT, April 21,1981.
"Monnet played": Nader and Taylor, Big Boys, p. 198.
"Sure, absolutely": Ibid., p. 199.
"I think power": Nader and Taylor, Big Boys, p. 202.
The last tycoons: the secret history of Lazard Frères & Co Page 93
