Lazard Gets Some Unsolicited Deal Advice: Consider Splitting

(Bloomberg) -- As one of Wall Street’s top investment banking boutiques, Lazard Ltd. is usually the expert telling companies how to improve their businesses and shareholder returns. Now, an analyst covering the firm is turning the tables.

Devin Ryan, at JMP Securities, surveyed investors and found about two-thirds of them would like Lazard to at least consider splitting off its asset-management arm from its advisory unit. The theory is that the market will award higher valuations to the individual pieces -- especially the business that guides mergers and acquisitions.

“Lazard trades at a sizable discount to advisory peers,” Ryan wrote Thursday in a note to clients. That’s “not always been the case.”

Chief Executive Officer Ken Jacobs has spent years expanding Lazard’s asset-management operations, run by Ashish Bhutani, with assets reaching record levels in recent months despite outflows across the industry. He defended the firm’s two-pronged model on a conference call just last week, noting it stabilizes earnings, and said jumps in shares of rival M&A boutiques sometimes reflect their volatility.

“We’re a more diversified platform,” Jacobs told analysts on the call. “Oftentimes you see a decoupling of our share price from our peers,” which can be frustrating, he said, but many are just coming from a smaller base.

Ryan said he received more than 50 formal responses to his survey from a mix of hedge funds and mutual funds, most of whom manage more than $10 billion. About half own Lazard’s stock, which 84 percent called undervalued. A majority -- 76 percent -- said they would prefer the company pay out excess capital by increasing stock backbacks, rather than plowing it into dividends or expansion.

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