Over the next two months the four-man committee deliberated in secret. Numerous potential buyers were approached, and in some cases the talks inched toward a successful conclusion. In late January, Glucksman lunched alone in a private Lehman dining room with Charles M. Harper of ConAgra. They hit it off, and it was agreed that Glucksman, accompanied by Bob Rubin, would fly to Omaha to spend time with ConAgra’s CEO and his people. In mid-February, Harper’s plane flew them to Omaha. After Glucksman and Rubin returned to New York, Eric Gleacher, who remained ConAgra’s investment banker, flew to Nebraska and spent the better part of three days structuring a potential deal. Harper, Glucksman and Rubin met again in New York on February 27 and talked about a deal that would have given Lehman partners $300 million in cash and $150 million in convertible debentures; Glucksman would be made co-chairman of the entire company, a power-sharing arrangement similar to that reached by John Gutfreund when Salomon Brothers merged with Phibro. Glucksman could not fail to note that the $450 million offer was appreciably less than the $600 million dangled in May 1983 and that he would not be co-CEO, as Gleacher had said the May offer had provided. But Glucksman knew that times had changed. Lehman’s net worth and profits were down. He was not dealing from strength, as he would have been in the spring of 1983. According to Eric Gleacher, “They made a deal”—subject first to a “due diligence” check by ConAgra’s accountants, Touche Ross, and then to approval by their respective boards.

The “deal” fell apart in the first week of March. Touche Ross came back to Harper, who was holed up at the Helmsley Palace Hotel, and reported, says Gleacher, that “overheads have gone completely out of whack. They are putting on people, new phones—and at the same time their business was going down.” Glucksman’s aversion to cost-cutting, which constantly frustrated Peterson, now scared Harper. And not without reason. Lehman’s March 1984 gray books, for example, showed that net pre-tax income for the first six months of the fiscal 1984 year was down by $75 million compared to the same period in 1983; at the same time, expenses rose by $13 million. Harper tried to structure another deal, but the momentum was lost.

Glucksman liked the idea of a nonindustry partner, one who might leave the investment-banking side of their business to the experts. Such a merger promised more freedom for the partners and enhanced the chances that Lew Glucksman would remain as chairman. This desire led to discussions with Laurence and Robert Tisch of the Loews Corporation. Glucksman felt comfortable with Larry and Bob Tisch. They were all alumni of New York University and had undertaken to raise funds for the university. Each man sat on N.Y.U.’s board. Larry Tisch liked Lew Glucksman, and fondly remembered the dinner they once shared at N.Y.U. when these two millionaires mourned the death of the five-cent hotdog, and Glucksman told him that he still did his own laundry rather than send it out and pay “ridiculous” prices. They talked about Loews putting up between $150 and $200 million to purchase a 50 percent interest in Lehman’s stock. A deal with the Tisches would mean that Glucksman would probably remain as chairman and CEO, but partners would not receive a premium above the book value of stock that the firm would redeem with part of the Tisch investment, although they would remain a private partnership. “Our idea was to maintain it as a private partnership,” says Larry Tisch. “I think Lew liked the idea. I don’t think it gave the partners what they wanted, which was a premium.” Lehman board member Harvey Krueger, who says he suggested the Tisches to Glucksman, puts it another way: “The principal reason the Tisch transaction didn’t go through was that they only wanted to purchase 50 percent.”

Initially, all conversations for Lehman were usually conducted by Glucksman and Rubin. “They were chairman and president,” says Solomon. “That was dead-solid proper.” Glucksman and Rubin also talked with Martin Davis, who had just stepped into the CEO slot at Gulf & Western. These were just discussions, not negotiations, says Glucksman. They spoke of selling 100 percent of Lehman’s stock for $350 or so million. “I was very enthusiastic. I like Martin Davis. I thought it would be a great fit. His problem was that he was concerned about the general reputation for divisiveness that Lehman had. And as a relatively new executive officer, I think he was wary of controversy and wary that the brokerage business had turned sour. He was right.”

There were conversations with Prudential, where Glucksman returned to talk about adding more capital. Prudential was interested, says Glucksman, but they had their hands full at that time with Bache, which they had acquired. “The Pru,” Glucksman says, offered to purchase a 50 percent interest in Lehman, at a lower price than the Tisches had bid. This was not acceptable to Lehman. According to members of the four-man Lehman committee, there was one discussion each with Chicago businessman/investor Jay Pritzker, who was not interested in paying a steep price; with an intermediary of Merrill Lynch; and with a medium-size insurance company.

There were no discussions with Enrico Braggiotti of BCI, Lehman’s sole outside shareholder, though he says he would have invested more, but only after “restructuring the firm—a new chairman, a new president, a new board.” There were no serious discussions with Stephen Bershad, who headed Lehman’s London office, and who says, “If it were just capital we needed, there were plenty of foreign firms that would put in capital. I suggested early on that people in Europe would be interested in this. It was never pursued.” These were not pursued because Glucksman and a majority of the board, and perhaps a majority of the partners, embraced contradictory goals. Glucksman’s primary interest was in preserving Lehman’s independence and his own position of power, which he might best achieve by selling 50 percent or less of the business, or by selling to a nonindustry partner. A majority of the board, on the other hand, had as its primary interest collecting a premium for their stock, and displacing Glucksman.

With these conflicting aims, not surprisingly the committee failed to locate a buyer. The chemistry among committee members did not help. Once in a meeting in Glucksman’s office, recalls Peter Solomon, Bob Rubin jumped up and shouted at him: “You’re the cause of all this!” Glucksman, who shared Rubin’s contempt for Solomon, tried to play peacemaker. “Lew once thanked me for not reacting,” says Solomon. One day Glucksman was restrained, tolerant, the next he was an open wound. “Lew and Shel were hardly speaking,” recalls France de Saint Phalle. “Lew saw Shel becoming a rallying point against him.”

For two months, January and February, the four-man committee met and came up empty-handed. And in those two months, dreading leaks, they said little to their fellow board members or to their partners, many of whom did not know of the existence of the committee.

Rumors feast in a vacuum and the news blackout fanned the paranoia at Lehman. Partners, including a few outside the board who had gotten wind of the panel, wondered why there was no news from January through February. Why were they so passive? How had Glucksman tamed ferocious Peter Solomon? “In two and one-half months I don’t think they did anything,” observes one banking partner. “They didn’t make calls. They didn’t do up professional memorandums. They received people who made calls.” Says board member Dick Bingham, “They probably could have been a lot more aggressive. There were pressures, however, pressures of other business and at least two of them were fundamentally reluctant to pursue the sale alternative.”

The mood at Lehman Brothers that winter was “uncomfortable,” remembers Dick Fuld. “It was very antagonistic. When you went to meetings people’s paranoia began to manifest itself in antagonistic remarks.” Partners were further antagonized by reports that Henry Breck, without authorization from the board, tried to peddle Lemco, the $10 billion money management arm of the business that he ran. They were outraged to hear that Breck offered the business for $60 million, far less than the $75 million once discussed at operating committee meetings when they debated shrinking the business. Breck explained to his partners that the vice chairman of the Continental Group was in his office on another matter. After talking to him about the inherent problems of running a financial business, Breck recalls the following exchange:

“What a wonderful business we have at Lemco,” he said, walking out with the vice chairman.

“Henry, if I hear you right, you’re asking me to be a partner in Lehman management?” said the vice chairman.

“Don, you may be right,” answered Breck, who says he never mentioned $60 million or any other figure, but immediately reported the discussion to Glucksman and Rubin. From his contacts at the Continental Group, Pete Peterson heard something else; he heard that Breck had offered “one of the crown jewels of Lehman for a bargain price”—$60 million. He says Lemco was then worth $75 to $120 million. Shocked, the former chairman says he called a director and asked, “What’s going on here?” The board member called back to confirm the substance, and to say that this, like ConAgra, was not first presented to the board.

Between January and March, recalls François de Saint Phalle, “A lot of partners came to me and said, ‘Look, you get us out of this. You’re on the board.’” What they wanted to get out of, he explains, was “the management crisis. The capital crisis. The business crisis. People were sitting there looking at their investment and seeing the high probability, over the next three to six months, that Lehman could lose considerable money. For it was a straight investment decision. We had made a lot of money in the last four years, and it was time to sell.”

The partners were depressed, and frightened, by Lehman’s internal earnings reports. From October 1983 through February 1984, income totaled just $7.1 million before taxes and bonuses, compared with $87.3 million a year earlier. Since the banking and money management divisions were still thriving, partners understood that buried in these figures were substantial trading losses, though they did not know how large these would eventually be. And the future looked even more bleak than the immediate past. In early March, chief financial officer Michael Schmertzler drafted a somber report for the four-man committee, warning: “Management does not anticipate that the environment in which it is operating will necessarily improve this fiscal year. Indeed, trading and distribution losses could lead to consolidated losses in net income in certain months.” Primarily because of money siphoned from the firm by the six partners who had left, the equity capital or book value of the Lehman holding company had plunged by $31 million between October 1, the day Glucksman became sole CEO, and the end of March, when Lehman’s equity value was $145.1 million. And that number would shrink still further if more partners escaped with their capital.

Rising interest rates, coupled with a weak stock market and high overheads resulting from the 1982—1983 boom, were depressing earnings all over Wall Street. The quarterly profits of the brokerage houses that relied on trading were down, and several posted losses. Merrill Lynch lost $32.8 million in this, the second quarter of the 1984 fiscal year; Dean Witter lost $25.8 million; E. F. Hutton lost $7.8 million. Perrin H. Long, Jr., a Wall Street analyst with Lipper Analytical Services Inc., calculated that pre-tax profits for the investment banking and brokerage community totaled just $150 million in the second quarter, down from $497 million in the first quarter of 1984 and $1.46 billion in the second quarter of 1983.

Board members despaired on March 12, when the “capital committee” reported back to them. The committee sketched the various conversations they had had with potential suitors, without naming them. Some board members found the four men strangely vague, eerily calm. “They came up empty-handed,” recalls William Welsh. “That stirred up the troops, who were waiting around for something good to happen.” The board admonished the committee to be more vigorous in seeking suitors.

The committee vowed to become more aggressive. “I decided we would initiate some conversations,” says Glucksman. They knew this might make them appear eager to sell, which would lower the price. But the alternative was worse. Glucksman and Rubin visited Equitable, the insurance giant whose chairman had hosted the July 1983 lunch that precipitated Glucksman’s challenge to Peterson. Glucksman also went back to Martin Davis. He talked to Prudential and to General Electric. This time Glucksman was outlining propositions. And the fish were not biting.