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The identity crisis at Cazenove

was followed by a single sentence each from Cazenove chairman David Mayhew and from Verey, the abruptly departing deputy chairman, saying how unfortunate it was, really, that they couldn't seem to get on together.

was followed by a single sentence each from Cazenove chairman David Mayhew and from Verey, the abruptly departing deputy chairman, saying how unfortunate it was, really, that they couldn't seem to get on together. We had "different expectations of each other," wrote Mayhew, "and we have agreed to go our separate ways."

Later Mayhew, 62, told Institutional Investor that "cultural differences" were at the root of his and Verey's falling-out. Verey, 51, formerly chairman and CEO of investment bank Lazard Brothers, would only say that he was "equally sad that plans have not worked out."

But behind these restrained expressions of regret, which might seem to imply a classic personality clash, was a much more profound conflict -- one within Cazenove itself over the proper role for the U.K.'s most venerable corporate stock brokerage as rivals increasingly poach on its traditional turf. Should the firm offer the full range of merger advisory services, like the British and U.S. investment banks it has had to compete with ever since Big Bang? Or should it concentrate for the foreseeable future on stock distribution and its peculiarly British brokerage niche: acting as an intermediary among companies, their shareholders and the London Stock Exchange, as provided for by quaint exchange rules? Cazenove is involved in everything from selling stocks to giving clients advice on pricing new issues to generating copious research.

The firm would do well to make up its mind soon, because it has announced that it intends to do an IPO as early as next April. Or perhaps even sooner on London's Alternative Investment Market.

Chairman Mayhew, elaborating on why Cazenove and Verey parted ways, cites the strain of one firm trying to serve two different types of clients: corporations, on the one hand, and institutional investors -- the market -- on the other. "We start with one client background, and he starts with another client background," says Mayhew. "There is a difference: We come from the market perspective vis-à-vis his coming from the investment bank perspective." Cazenove does not want to be a corporate finance (that is, M&A) "advisory boutique," Mayhew asserts.

But exactly what Cazenove does want to become is less clear than ever, especially now that Verey has decamped. When Cazenove incorporated in April 2001 in preparation for going public, ending 178 years as a private partnership, the firm -- whose revenues in the nine months to January 31, 2001, were about £300 million ($439 million) -- began styling itself as a "leading independent investment bank."

The hiring of veteran deal maker Verey three months later seemed to underscore this incipient change of identity. Indeed, at the time, Mayhew hailed Verey as "committed to helping us build a strong, independent investment bank." Verey's mission was to build on his considerable contacts and the firm's gilt-edged corporate brokering relationships -- Cazenove counts half of Britain's premier companies as its clients -- to garner lucrative merger advisory business.

And not just in the U.K. Mayhew is convinced that, although Continental capital markets have nothing quite like a corporate broker, he can export Cazenove's deal-making skills across the Channel. Europe is "crying out for advice," he says. "The interface between management and shareholders is relevant wherever you are." The firm already has ten offices around the globe.

Deal-making supremo Verey was expected to fit Cazenove like a City gent's calfskin glove. He had attended Eton, as did Mayhew and other senior members of Cazenove. As a longtime City figure, Verey had sat on the opposite side of the table from Mayhew on deals for more than 20 years. The two were, in fact, old chums. Verey's father, Michael, a merchant banker, had dealings with Cazenove going back to the 1950s. And like Cazenove, Verey's old firm, Lazard, had an independent streak. Verey resigned after the three houses of Lazard -- London, Paris and New York -- were combined last year.

Cazenove's putative transformation from traditional brokerage to full-blown investment bank is symbolized, moreover, by the firm's impending abandonment (by mid-2003) of its early 19th- century town house headquarters in a tranquil cul-de-sac behind the Bank of England. Entering through the ponderous main door, one is greeted by frock-coated gentleman attendants and can sense, even smell, the Old Worldliness of the place.

In stark contrast, Cazenove's brand-new offices around the corner at Northgate House on Moorgate lie on one of the City's busiest thoroughfares and feature a modern interior layout, albeit with vestiges of traditional decor.

Many longtime Cazenove staffers might well prefer not only the old quarters but also the old way of doing business. Mayhew himself is clearly ambivalent about the push into investment banking, which he ostensibly championed. In a conversation just a fortnight before Verey's exit, the Cazenove chairman spoke of the firm as an "independent adviser," never once invoking the term "investment bank." Mused Mayhew, "The position we are at today is that we are a relationship adviser, that is, a corporate broker, but that's all right -- in that context we are one of the trusted ones."

Mayhew's Cazenove wants to change, but it is not going to be hurried. The firm's goal is to gradually win more mer-ger advisory mandates, either alongside of or independent of its existing brokering relationships in the U.K. and abroad. Cazenove certainly has connections. As a corporate broker, it ranked No. 1 in the U.K. in 2001 by participating in almost 30 deals together worth nearly £25 billion.

Can Cazenove, in due time, replicate such success on the more remunerative M&A side of the business? With Verey gone, that task falls chiefly to Robert Pickering, 42, head of investment banking and, since May, chief executive of Cazenove Group, responsible for overseeing all the firm's business lines.

Pickering is more forthright than Mayhew when it comes to characterizing Cazenove's commitment to corporate finance. "Investment banks are interested in building up broking, as they see it as a way of forging relationships and, crudely put, using it as a hook to sell product," Pickering pointed out to II in April. "Along with Rothschild and Lazard, we are a natural advisory-based firm. We have our corporate broking relationships, and, to use old-style terminology, we are offering merchant banking as well."

Pickering and co-heads of corporate finance Nick Wiles and Tim Wise have been quietly hiring seasoned merger bankers away from such firms as Credit Suisse First Boston, Dresdner Kleinwort Wasserstein, J.P. Morgan, Lazard and UBS. Charles Harman joined Cazenove last year from CSFB to head the technology, media and telecom team. This year he was joined by former Lazard banker David Anderson, who had been corporate finance director of Vodafone. Recently, Cazenove won its first significant takeover advisory mandate for Lastminute.com, after serving as the Internet travel adviser's broker for several years.

BT, long a brokering client, has begun to pay Cazenove for M&A advice. Andy Longden, the telecom's group treasurer, reasons that because a broker has a long-term relationship with a company, it's more likely to give independent advice. "Cazenove has carved out a niche in this area, and they are as close to a truly independent adviser as one could get," he says.

But corporate finance coups remain rarer than Pickering would like. Over the past 20 months, Cazenove has advised on 33 European deals worth nearly $49 billion, according to Thomson Financial. By contrast, Verey's old firm, Lazard, handled 196 European deals worth about $118 billion.

Mayhew is unconcerned that the investors that have partially backed Cazenove ever since the firm incorporated 17 months ago might become impatient with his slowly-slowly approach to the merger game. He describes them as long-term investors, mainly big life insurers, that understand Cazenove's business. All of the investors are long-standing clients of the firm. They are the "market" that Mayhew feels most comfortable with.

Being a first-division corporate finance player, however, requires a heftier balance sheet than these shareholders might want to underwrite. Yet Mayhew insists that Cazenove's motive for going public next spring is not primarily to raise extra capital but to encourage more employee ownership -- and thus commitment. "I don't think size is the issue, and indeed, size is possibly the enemy," he says, adding that Cazenove's success depends on the firm's being "a people-led business, not a capital-led business."

Cazenove's plans to list this April remain on track, Mayhew says, and he strenuously denies rumors that the firm is now or has ever been in merger talks with Goldman Sachs or Morgan Stanley or J.P. Morgan.

Independence, of course, is Cazenove's stock in trade. Keeping it, after 18 decades, will be this singular firm's greatest challenge.

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