At a talk on September 20th at New York's 92nd Street Y, Lazard Ltd. (NYSE: LAZ) CEO Bruce Wasserstein took a swipe at Time Warner Inc. (NYSE: TWX), BloggingStocks' parent, for its moribund stock price. At the same time, Wasserstein patted himself on the back for taking all his chips off the table when the stock levitated above $18 following the publication of a Lazard report on Time Warner.
Lazard, which was hired by corporate raider Carl Icahn in February 2006, authored a 343 page report that argued for a breakup of Time Warner and a big stock buyback. Beyond its $5 million fee, Lazard's reward from Icahn was a bonus based on how far above $18 Time Warner stock went. Lazard's report estimated that Time Warner's breakup value ranged between $23.30 and $26.57. Following the report, Time Warner stock rose -- peaking at $22.73 on January 12, 2007 -- before declining to its current $18.99 -- about 50 cents a share above its price in February 2006.
While he claimed to like Time Warner management -- he called CEO Dick Parsons "a lovely, well-liked guy" and president Jeff Bewkes, "a highly regarded management kind of guy" -- Wasserstein blamed Time Warner's moribund stock price on their decision not to follow the recommendations in his report. Wasserstein thought Time Warner took one of his ideas -- a $20 billion stock buyback (Time Warner bought back $12 billion) -- but ignored his other suggestions -- to do more spin-offs and to run AOL more effectively.
Wasserstein's weaselly words glossed over what appeared to be a betrayal of Time Warner management. Prior to backing Icahn, he had done a lot of work for Time Warner -- bragging about all the great advice he had given to create Time Warner -- including the Time Warner/AOL merger -- when he just took credit for it right before he sold Wasserstein Perella to Dresdner for $1.4 billion.
And some alleged that it was disloyal of Lazard to advise Icahn's effort to get Time Warner to boost its price in the short term. But Wasserstein dismissed that concern saying "I've had nothing to do with them for a number of years." Since Wasserstein spent so much time bragging about how Lazard is all about building client "relationships" this justification for betraying Time Warner is hardly compelling.
Despite Time Warner's weak stock price performance, Wasserstein turned the incident into a personal victory -- boasting: "our options were all cashed out." Wasserstein's comments tell me that nobody really knows what moves a company's stock price -- not even someone as smart as Wasserstein. However, thanks to an agreement between Icahn and Parsons to "settle" on the stock buyback, a short-term supply and demand change drove the stock up long enough for Wasserstein to profit from his arrangement with Icahn.
If Lazard's client "relationships" are like the one it had with Time Warner -- backing corporate raider Carl Icahn to boost Time Warner's stock price for a quick trading profit -- then its other clients should beware.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
New Facebook share structure hints at IPO
Before the bell: Futures higher ahead of housing, jobless data
Nuclear power is on the comeback trail
