Takeovers have been the most awesome money machine on Wall Street. And the investment firm of Drexel Burnham Lambert frequently has been at the controls, revving things up by feeding the financial markets with high-interest bonds that it called "high yield" and others called "junk."
As the insider trading scandal surrounding professional speculator Ivan F. Boesky widens, an atmosphere of fear and panic among securities professionals has enveloped Drexel. Federal investigators have subpoenaed a number of its officials, and the resulting speculation about who might be involved in the scandal has raised doubts about the ability of Drexel and other investment houses to complete takeovers and corporate restructurings that require junk bonds to be issued.
Troubles for Drexel and junk bonds could have widespread implications for the takeover wave that they have stirred up in so many different industries.
Stocks of real and rumored takeover targets fell sharply last week, although they recovered somewhat toward the end of the week. And Drexel and corporate raiders have felt obliged to assure the rest of Wall Street that their deals won't fall apart.
While Drexel may lose some business, the firm has completed some hefty financings in the midst of the unfolding scandal. And new takeover assaults emerged last week.
Here is a look at how uncertainty in the takeover and junk bond market could affect various industries:
Some people are counting on things to quiet down. Care Enterprises is among them. The Laguna Hills nursing home operator has $67.7 million in Drexel-underwritten junk bonds outstanding. But by the time Care Enterprises gets around to refinancing that debt, the heat should be off the junk bond business, said Derwin Williams, the firm's chief financial officer.
"We are not in a position to refinance a lot of debt now," he said. "By the time next year rolls around, things will have quieted down."
Until then, there could be some rough going for some companies. The stock of CooperVision, a Palo Alto, Calif., maker of contact lenses and eye-care products, was hard hit last week, apparently because of the company's affiliation with Drexel.
CooperVision said in June that it would consider the sale of one or more of its units, and in September, the whole company was put on the block. It retained Drexel, its chief investment banker, and Morgan Stanley & Co. to help find a buyer. Drexel has done two bond issues for CooperVision in the past two years.
Analyst Larry Haimovich of Swergold, Chefitz & Sinsabaugh in San Francisco said it is unlikely that potential buyers would resort to junk bonds to finance the deal.
Most companies in the health-care field, however, are not likely to feel much fallout from the insider trading scandal, largely because few takeovers and restructurings have been big enough to attract leading junk bond underwriters.
Unlike multibillion-dollar mergers that involve oil companies, airlines and other businesses with considerable fixed assets, most health-care mergers have been worth less than $100 million, said Jules Marx, of the New York investment firm of D. H. Blair.