Insider Scandal Jitters May Slow Takeover Mania : Probe of Top ‘Junk’ Bond Dealer Raises Doubts on Financing for Some Deals

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:

Retailing

Mergers will probably be slowed in the takeover derby for retailing companies, but not for long, analysts said.

The stocks of Federated Department Stores, J. C. Penney and Stop & Shop--all rumored takeover candidates--all declined in price after the Boesky scandal was revealed, although they later recovered.

“I think (the scandal) might make someone think twice before they go after someone,� said William N. Smith, an analyst with Smith Barney, Harris Upham. “I think anyone in their right mind would be hesitant to count on Drexel.

“But I don’t think that sources of financing are going to dry up,� he said. “Some profit-minded player will come in to fill the void.�

Chief among the imperiled deals is the $1.7-billion offer by Wickes Cos., a retailing and manufacturing company, to buy its Santa Monica neighbor, Lear Siegler, an aerospace and manufacturing conglomerate. Wickes has been unable to arrange satisfactory bank financing and is “not optimistic� that it can.

Although Wickes was counting on bank debt to finance the deal, turmoil in the junk bond market apparently has removed the option of resorting to that market. Drexel represented Lear Siegler in the deal but is traditionally Wickes’ adviser.

Wall Street also has doubted Revlon’s ability to succeed in its hostile run at Gillette, driving the stock down sharply. But Drexel said it remains “highly confident� that it can obtain the $3.9 billion in financing needed to acquire Gillette.

Other takeovers appear to be on track. Drexel underwrote $1 billion in bonds for the leveraged buyout of Oakland-based Safeway Stores last Tuesday and followed up last Thursday with the public offering of 450,000 shares of preferred stock and 99,000 limited partnership units.

W. R. Grace said Thursday that Drexel has gotten commitments for about $275 million for the management-led leveraged buyout of its restaurant group, which is expected to be completed by year-end.

A $1.25-billion management-led leveraged buyout of Revco is being partly financed with junk bonds issued by Salomon Bros. Shareholders are not scheduled to vote on that proposed deal until Dec. 16.

Asher B. Edelman, best known for his hostile takeover bid for Lucky Stores, said he doesn’t think the insider trading scandal and its disruption of the junk bond market will dampen takeover enthusiasm. “I think there’s a lot of competition to do financing for valid acquisitions,� he said.