Lehman and Kuhn Loeb to Merge (Published 1977) (2024)

Lehman Brothers Inc. and Kuhn Loeb & Company, two of the most widely known and oldest investment banking firms on Wall Street, announced plans yesterday to merge.

The consolidation of Lehman, founded in 1850, with Kuhn Loeb, founded in 1867, would bring together two organizations with great international prestige, diversified financial capability and a long roster of blue‐chip corporate clients throughout the world. It would also create one of the largest concerns in the securities industry, with ‘total capital of more than $78 million and 1,800 domestic and foreign employees.

Terms of the merger agreement, signed yesterday and scheduled to be completed Dec. 16, call for Peter G. Peterson, 51 years old, chairman and president of Lehman, to hold the same positions in the combined firm. John M. Schiff, 74, chairman of Kuhn Loeb and a member of that firm's founding family, would be honorary chairman.

The new enterprise would be a holding company called Lehman Brothers Kuhn Loeb Inc., owned by the present stockholders of the two firms, who are mainly present and former partners and their families, as well as the Banca Commerciale Italiana Group of Italy, an investor in Lehman. For its foreign operations, the concern's name would be reversed, creating Kuhn Loeb Lehman Brothers International.

The merger plan is the latest in a trend that has shaken the financial community over the last two and a half years after the onset of fully negotiated commission rates for brokerage transactions. In 1977 the merger and acquisition trend picked up noticeably, particularly following efforts by the Securities and Exchange Commission to break down competitive barriers in the industry by eliminating restrictive New York Stock Exchange rules barring trading away from the exchange's floor.

Among the consolidations announced in recent months was the pending combination of Dean Witter & Company with ‘ Reynolds Securities Inc., the largest merger in Wall Street history. Others include the proposed merger of Loeb Rhoades & Company (unrelated to Kuhn Loeb) and Hornblower, Weeks, Noyes & Trask Inc., as well as the mergers of mitchell Hutchins Inc. into Paine Webber Inc. and Faulkner. Dawkins & Sullivan Inc. into Shearson Hayden Stone Inc.

In contrast to these combinations involving concerns that are primarily in the brokerage business, however, the Lehman•Kuhn Loeb merger would mark the first.major linking of this year of old‐line investment banking firms. The new concern would become the fourth‐largest investment banker—after Salomon Brothers, Goldman, Sachs & Company and the First Boston Corporation—although many big brokerage firms also have extensive investment banking operations.

While brokerage firms principally act as agents for their customers who buy and sell securities, investment bankers are primarily concerned with raising capital for their corporate clients through underwritings and private placements. The investment banking function also encompasses recommending mergers or cquisitions, handling tender and exchange offers and financing public authorities and municipalities.

Investment Banking Operations

Thus, for example, when Pan American World Airways Inc. wanted to exchange one category of security for another, called upon Lehman to provide advice and expertise on the $350 million transaction. Similarly, when the Westinghouse Electric Corporation sold $170 million worth of common stock to the public, Kuhn Loeb acted as co‐manager of the syndicate that distributed these shares through 200 different securities firms.

In discussing the proposed merger yesterday, Mr. Peterson said, “There is a remarkable fit of the firms in businesges, philosophy and people. We've brought together some important management strengths in both domestic and foreign operations.”

Mr. Schiff, the patriarch of Kuhn Loeb and one of the most respected figures on Wall Street, noted that “in this day and age it's a battle of the giants. This is a highly competitive business and we are going to be a strong and highly competitive organization.”

Lehman has 1,250 employes and 10 offices in the United States and overseas. Kuhn Loeb has 550 ‘employees and 7 offices. The number of employees would be reduced after completion of the merger, although officials of neither company would estimate.the extent of the layoffs. Offices in six cities would be combined, including New York, where the employees at Kuhn Loeb's 40 Wall Street headquarters will eventually be phased into Lehman's 1 William Street headquarters, also in the heart of the New York financial district.

Both Lehman and Kuhn Loeb are privately owned corporations that do not issue public financial reports. Lehman, which has about $60 million in capital, is understood to have earned more than $20 million in its fiscal year ended Sept. 30.

Kuhn Loeb, with capital of around $18 million, is said to have suffered a large trading loss recently in securities of the Government National Mortgage Association. But Mr. Schiff said yesterday that his firm has been operating in the black in 1977.

Both firms have discussed amalgamations with others this year, especially Kuhn Loeb, which has talked to Shearson Hayden Stone Inc., Paine Webber Inc. and Blyth Eastman Dillon & Company. Their discussions with each other have been going on for several weeks, with a final decision made yesterday morning.

In the new company, Harvey M. Krueger, president and chief executive officer of the Kuhn Loeb, will be responsible for investment banking and chairman of the banking policy committee. Lewis L. Glucksman and Robert S. Rubin, members of Lehman's executive committee, will direct all equity and fixed‐income activities.

Combined Executive Committee

The executive committee of the combined firm would consist of 10 members, seven from Lehman and three from Kuhn Loeb. The Lehman representatives, in addition to Mr. Peterson, Mr. Glucksman and Mr. Rubin, would be George H. Heyman Jr., chairman of the investment committee, David G. Sacks, chairman of the capital planning committee, Ian K. MacGregor, chairman of Lehman Brothers International, and James W. Glanville. All but Mr. Peterson, the chief executive officer,‐and Mr. McGregor, the head of foreign operations, have the title of managing directors.

The Kuhn Loeb members of the executive committee, besides Mr. Krueger would be Yves‐Andre Istel and Anthony M. Lund, who direct their company's foreign activities and who are Kuhn Loeb managing directors. The organization headed by Mr. Istel and Mr. Lund would be responsible for the international business of the combined firm.

A co*cktail party for officials of the two firms was held last night at the Lehman offices to celebrate the impending merger. Mr. Peterson acted as host before departing for Europe for meetings with both companies’ international staffs and with representatives of the International Chamber of Commerce.

Shortly before the party, Mr. Krueger jokingly observed that the consolidation involved more than just the two investment firms. “It's also a merger of two of the best kitchens on Wall Street,” he said.

The New York Times J4bn M. Schiff, left, Kuhn Loeb chairman, with Harvey M. Krueger, presi‘dent, at the news conference yesterday as the merger was announced.