When clouds appear over Drexel Burnham Lambert Inc., stocks involved
in hostile takeovers can also face troubles, as speculators wonder
if Drexel's problems will interfere with the financing of those
Thursday, in the first full day of trading after Drexel, Michael
Milken and others in the firm's ``junk bond'' department were
charged with securities law violations by the Securities and
Exchange Commission, prices of many stocks linked formally or
informally to takeover bids were down.
But the declines, which were not confined to deals involving
Drexel, were not major compared with the overall market, where the
Standard & Poor's 500-stock index was up 0.01, to 265.88.
And the declines were far more moderate than the sharp price
drops that followed the news in late 1986 that the arbitrager Ivan
F. Boesky would implicate Drexel executives in the government's
The most noticeable development among Drexel-related financings
was in the stock of Interco, the St. Louis furniture and shoe maker
that has been the target of a hostile bid from an investor group
advised by Drexel.
Interco stock fell $1.75, to $70, the price offered by the
takeover group led by Steven M. Rales and Mitchell P. Rales, two
Analysts said there were no adverse developments among Interco's
retail sales or manufacturing businesses to explain the decline.
The cash flow and prospects of Interco's various busineses have
produced estimated values of the company of more than $75 a share,
which explains why the company had been trading above the Rales
Although the Rales brothers filed documents last month
explaining how they intended to pay for the $2.5 billion purchase of
all Interco's stock, there are apparently some unresolved questions
about that financing.
Documents filed with the SEC showed that the Rales had $2.15
billion of borrowing arrangements with banks led by Chase Manhattan,
while Drexel had said it was ``highly confident'' it could arrange
for $1.8 billion of debt or preferred stock financing.
Thursday morning, Interco issued a news release noting that a
company controlled by the Rales brothers, the Cardinal Acquisition
Corp., ``had not disclosed whether it had received definitive
Since SEC rules do not allow the stock to be bought under a
tender offer for at least five days after those commitments have
been disclosed, the Rales cannot buy Interco stock on the Sept. …