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:

Energy

Energy has departed center stage in the merger and acquisition drama, leaving USX--the former U.S. Steel, now dominated by oil and gas holdings--as the industry’s only apparent major pending takeover case affected by fallout from the Boesky scandal.

Generally, however, even though past energy takeovers or attempts are the subject of the Boesky insider trading probe--reportedly including the Drexel-backed bids by T. Boone Pickens Jr. for Unocal and Phillips Petroleum--there appear to be few immediate implications for the industry.

“Energy right now is in more of a mode of liquidation than acquisition,” said Andrew Gray III, oil and gas analyst at Pershing & Co. “Most of the action is on the exit side, not the entrance side.”

Gray was referring to the sharp collapse in oil prices this year and the restructuring, selling off of assets and other retrenchment that has taken place, especially by the smaller and weaker oil and gas producers.

Energy economist Scott Jones of Chase Econometrics said the sudden reluctance on Wall Street to trade information, a reaction to the insider trading crackdown, could serve to chill the recent wave of bargain hunting for oil and gas reserves--to the benefit of privately held companies that don’t need public financing.

“To the extent it makes potential purchasers reluctant to seek information, the privately held companies could have a field day with all those reserves,” Jones said. But so far, other analysts said, this year’s Oil Patch deals have involved little outside financing.