Insider Trading Charges against Drexel Fail to Interfere with Financing, Stocks
Quint, Michael, THE JOURNAL RECORD
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 insider-trading case.
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 Washington businessmen.
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 offer.
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 financing commitments.''
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. …