After more than a week of overdosing on mega-deals, the fear of failure has given Wall Street traders and speculators a reason to just say no to merger mania. Dragged down by sharp declines in key takeover issues, the Dow Jones average of 30 industrials fell 24.35 points on Thursday, closing at 2,140.83. The new wave of multibillion-dollar buyouts relies heavily on debt, and many observers are concerned that the financing of these deals ultimately may prove too fragile. ``This is not business as usual,'' said Robert Brusca, chief economist at Nikko Securities Co. International Inc. of the high level of debt mandated in these transactions. ``When you take a blue-chip company and turn it into a buffalo-chip company, it's not a good situation.'' Reflecting skepticism over Kohlberg Kravis Robert & Co.'s ability to fund its $20.3 billion tender offer for RJR Nabisco Inc., Nabisco's stock fell $2.75 share to $82. Other takeover issues also lost substantial ground, including Kraft Inc., which fell $3 to $94.50; West Point-Pepperell Inc. plunged $3.37{ to $44.50, and Pillsbury Co. slipped $2.12{ to $58.87{. Also down were so-called ``whisper'' stocks, which had risen on spillover speculation. ``There's too much debt supporting the nation's corporations, that's what this is telling us,'' said Philip Puccio, a senior vice president at Dillon Read & Co. Amplifying worries over the size of the recent deals were two developments. In the corporate bond market, where the billions needed to finance the deals are raised, a $1.15 billion junk bond sale for Campeau Corp.'s takeover of Federated Department Stores hit a major snag. Meanwhile, Federal Reserve Chairman Alan Greenspan has urged banks to be cautious about lending money for multibillion-dollar takeovers and buyouts. Greenspan's warning came in a letter to the Senate Banking Committee on Wednesday. ``Institutions have participated in so much of this debt financing that (the financial community) is starting to worry,'' said Puccio. ``They're afraid that if this thing does keep building the way it is and corporate America becomes a house of cards, it can collapse the way the stock market did.'' Transactions that are dependent upon a high level of debt are losing much of their allure. For example, Wall Street Journal report that U.S. Shoe Corp. is considering a leveraged buyout was said to be a factor in sending the company's stock tumbling $1.37{ to $24.25. Before the recent rash of deals, analysts agree, such a report would have driven the company's stock higher. In the junk bond market, underwriter First Boston Corp. said that while it had not officially withdrawn its offering for the Federated deal, it was engaged in discussions to restructure the transaction. Proceeds from the sale of these high-risk bonds were destined to pay off bridge loans used to cover the short-term costs of the Campeau takeover announced last spring. A delay could spell trouble for the banks and investment houses that provided that financing. ``If this causes some players to sit on the sidelines because they committed too much capital, then maybe they'll think twice next time,'' Brusca said. Because the recent deals all involve huge amounts of borrowed money, they could be devastated by higher interest rates or the inability of a company to sell off assets to cover the debt. Some observers also fear there aren't enough investors interested in purchasing billions of new junk bonds. But Michael Dahood, an analyst at Smith Barney, Harris Upham & Co., contends there is a hefty appetite for larger deals. ``I don't think deals that have a sound economic basis should have any difficulty getting funded,'' he said. The problem, however, is broader than one firm and one transaction. ``I'm concerned about the fact that at any point in time there are a lot of firms that are highly leveraged,'' said Gregg Jarrell, former Securities and Exchange Commission economist and now a professor at the University of Rochester. ``No one can really know the full extent of what could happen if the economy turned down,'' he said.
