Raiders Retreat -- for Now

By Gordon Bock

If stocks surged so high this year that they were bound to crash, part of the blame belongs to America's relentless band of corporate raiders. As takeover titans battled to outbid one another, the share prices of many target companies -- or companies merely rumored to be targets -- reached unrealistic levels. Now, in the aftermath of Black Monday, the big deals are crumbling, and the raiders are retreating. But for how long? Is this the nadir of the raider, or will sagging stock prices make the targets more irresistible than ever?

For the moment, takeovers have become a perilous pursuit. Many deals in progress when the crash hit have been scuttled or are in jeopardy because the original bids seem absurdly high after the drop in stock prices. Dart Group, a retail conglomerate controlled by Washington's Haft family, dropped its $68-a- share bid for the Dayton-Hudson department-store chain when the target company's shares fell to $30. Hong Kong-based Jardine Strategic Holdings called off a $390 million bid to buy a 20% interest in Bear Stearns when shares of the Wall Street firm plummeted from $23 to $12. The crash ended TWA Chairman Carl Icahn's effort to take the airline private by offering to pay $45 apiece for shares that ended up dropping to $14 the day after the crash. Said he: "I'm sitting on the sidelines."

But other players think that now is a good time to get into the game. Says T. Boone Pickens, the Texas oilman and raider extraordinaire: "If companies were attractive targets when the Dow was at 2500, they will be even more attractive with the Dow at 1800." Manhattan Financier Asher Edelman has spent $72 million since late August to accumulate 11.5% of Foster Wheeler, a New Jersey-based construction company; much of the buying came as the firm's stock tumbled, from $21 to $11.25, amid the crash. Paul Bilzerian, a Florida investor who has made more than $50 million in profits since 1985 from corporate raids against such firms as Allied Stores and Hammermill Paper, is mulling a run at Singer.

Congressional opponents of takeovers hope to keep the raiders from returning to their full glory. The House last week passed a tax bill that, among other things, would put a $5 million cap on interest deductions for debt resulting from takeovers. The measure would inhibit corporate raids, and many Wall Streeters believe the specter of the possible tax change depressed takeover stocks and thus played a role in setting off October's crash. Raiders hope the anti-takeover provision will die in House-Senate conference when lawmakers realize that the tax could drive stock prices still lower.

A more immediate deterrent to takeovers is the market's volatility. Wild gyrations in prices make it difficult for raiders to know what to bid for a company. Although Minneapolis-based Raider Irwin Jacobs has been boosting his stake in Greyhound and IC Industries since the crash, he is wary of making any big moves. Says he: "You don't do business in the eye of a hurricane."

The crucial question is how many raiders have weathered the market's tempests with enough cash to bankroll new deals. Several prominent players claim to have pulled out of stocks before the crash, and may still have sizable cash reserves. At Drexel Burnham Lambert, which last year financed more takeovers than any other Wall Street firm, Chief Executive Frederick Joseph contends that "there is still a lot of capital out there." If that is true, the takeover game could soon become as fast paced as it was in pre-crash days.

With reporting by Frederick Ungeheuer/New York