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:

Technology

The high-technology industry has been pretty much on the sidelines of the junk bond financing merry-go-round, partly because many parts of the industry have been so sluggish that there’s been little activity in either financing or takeovers.

There are no current major takeovers pending in the high-technology industry. Although there are some cash-rich companies that look to be suitable takeover targets, the companies that would be interested in buying them, most analysts say, probably would not go the junk bond route.

In biotechnology, for example, there have been three junk bond-financed deals, all debt issues by second- and third-tier companies. Hostile takeovers and leveraged buyouts just wouldn’t work well in biotech, said Bear, Stearns analyst Richard Bock, because of the nature of the companies; assets are people and technology, not buildings and property or even, at this point, products.