November 5, 2019

Trian Tries on Lazard for Size

Trian Partners is bullish on Lazard, whose headquarters are at Rockefeller Center.

I’d want to own a legendary boutique investment bank. In fact, I can, because Lazard (pronounced “Luh-Zahrd”) went public in 2005 and shares cost $26. But one hedge fund, Trian Partners, wants to own Lazard more than I do (or has more money) because they recently disclosed a 5% stake in the bank. The announcement made some waves on Wall Street – the bank didn’t look like the most likely candidate to invest in.

Bad pun aside, Trian tries on Lazard for size, and the old white shoe is front and center once again. (A former employee, William Cohan wrote a readable history of the firm in The Last Tycoons.) Barron’s Andrew Bary explains why Trian thinks the fallen stock could double.

Trian, run by Nelson Peltz, Peter May, and Ed Garden, expressed support for Lazard’s plan in a presentation and called the stock “significantly undervalued.”

At first glance Lazard’s shares (ticker: LAZ) don’t look all that cheap. Trading at a recent $25, they fetch 18 times projected 2012 profits of $1.44 a share. Big financial firms such as JPMorgan (JPM), Citigroup (C), and Goldman Sachs (GS) trade at less than 10 times.

But the “successful execution of Lazard’s plan,” Trian said, could produce “more than $3.50 a share” in profits in 2014, leading to a potential doubling of the stock price. In the meantime, investors can collect a 3.2% dividend yield.

Trian runs a concentrated portfolio and has scored with investments such as Heinz (HNZ), Kraft (KFT), Family Dollar Stores (FDO), Tiffany (TIF), and State Street (STT). Legg Mason has been a loser so far. Trian targets quality companies with lagging shares and often outlines prescriptive measures in detailed public reports, as it has done with Lazard. It prefers friendly relationships with management.

In its presentation, Trian argued that Lazard’s stock is more attractive than that of Evercore and Greenhill. If its asset-management arm is valued in line with peers, investors effectively are paying just over one times annual revenues for the advisory business, compared with an average of almost three times revenue at Greenhill and Evercore.

Lazard’s CEO, Kenneth Jacobs, is viewed as a capable leader. Trian puts their faith in his plan for increased profitability, including reducing its 62% employee compensation rate from net revenue.

If it can succeed on that end, when Trian tries on Lazard for size, it may find the perfect fit.

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