Word: junks
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Dates: during 1980-1989
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Firms like Drexel Burnham Lambert, which specialize in helping takeover artists float junk bonds, are another powerful new Wall Street force. Junk bonds are corporate IOUs issued by companies without established credit records, and are therefore considered risky. In the past two years some $27 billion in junk bonds have been issued. Both raiders and corporate executives who wish to take their companies private use them to raise the needed money. "Junk bonds completely changed the nature of the game," says Michael Dingman, president of Allied-Signal, a high-tech giant formed last summer in the friendly merger...
...million parting settlement, or golden parachute, he still talks like a bitter man. "The whole thing was crazy," he says. "Here we built a great American corporation. Then through this process the stock ended up in the hands of arbitragers, who forced the sale of the company. And junk-bond financing made it all possible...
Takeover artists, arbitragers, junk bonds and all the other elements of merger finance have created a mood of high uncertainty in corporations. Rather than planning new products or considering new markets, many executives are spending their time looking around at whom they might take over or who may try to take them over. In a less frenetic period, RCA might not have been so eager to find a merger partner. The motto of these executives could be borrowed from the legendary baseball pitcher Satchel Paige: "Don't look back. Something might be gaining...
...consolidation craze has created opportunities for sudden Croesus-style riches. For aiding Pantry Pride in its fight for Revlon, financial advisers and lawyers stand to gain more than $100 million. The winners include Drexel Burnham, which sold the junk bonds to finance the deal and is earning an estimated $60 million...
Nonetheless, some officials are taking measures to slow down or control the corporate wheeling and dealing. The Federal Reserve Board has been concerned about the financial impact of consolidations and is seeking to make it tougher to float junk bonds. Under a ruling likely to take effect in January, the Fed would limit the size of many junk-bond issues to 50% of the amount offered for a company. The move could cause a slowdown in takeovers and buyouts, at least until ingenious Wall Street moneymen devise new methods of raising funds...