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Edelman Reviewing His Telex Buyout Offer

November 11, 1987

NEW YORK (AP) _ Asher B. Edelman said Wednesday he was reviewing all aspects of his $65 a share buyout offer for Telex Corp. because of the uncertain market for the high-yield ″junk bonds″ to be used for financing the takeover.

The statement came a day after Southland Corp. announced it was postponing completion of its $4 billion leveraged buyout because of unsettled conditions following the stock market’s Oct. 19 crash.

It also came amid Wall Street speculation that the investor group led by Edelman, which twice has extended its $895 million offer, was unable to secure financing for the bid.

Telex shares dropped $2.12 1/2 to $48.87 1/2 in late New York Stock Exchange trading, after falling $6.37 1/2 in the two previous sessions on what analysts said was generally poor sentiment for takeover stocks.

Junk bonds have become a common financing tool for corporate takeovers, especially leveraged buyouts in which a company is acquired mainly with borrowed money that is repaid by the sale of assets or the company’s cash flow.

But the market for junk bonds has virtually dried up since the crash, because of worries over whether the economy was on the brink of a serious recesssion that would make it difficult for highly leveraged companies to service their debts.

The turmoil in the financial markets forced the delay or cancellation of several other multibillion-dollar proposals made before the crash, including buyouts of Trans World Airlines Inc., GAF Corp. and Dayton Hudson Corp.

Edelman’s group launched its tender offer on Oct. 9, and since then has twice extended the expiration date.

Edelman stated Wednesday that he had not yet requested commitments from Shearson Lehman Brothers Inc. or Banque Paribas, which are arranging financing for the deal, and did not know whether they were confident the money could be raised.

Shearson indicated initially it would arrange a $600 million short-term ″bridge loan″ to help finance the buyout. A suitor typically repays such loans, which generally involve an investment firm’s own money, with proceeds from the sale of junk bonds following completion of a takeover.

Banque Paribas was considering arranging a syndicated loan facility for up to $570 million.

Although he previously has mentioned other factors as delaying his request for financing commitments, Edelman on Wednesday pointed to the uncertain market conditions cited by Southland.

Southland said Tuesday it was postponing the sale and pricing of $1.5 billion in high-yield bonds needed to complete its leveraged buyout, which is being led by its founding Thompson family and other investors. Those bonds were to be used for paying off bridge loans and other short-term financing used for the initial stages of the deal.

Telex has proposed a $775 million recapitalization plan as an alternative to the buyout in the event Edelman did not move quickly to complete the tender offer. Telex said Tuesday it was proceeding with plans to put the plan to a shareholder vote in January after Edelman again extended the tender offer.

The recapitalization would pay Telex shareholders a special dividend of $45 in cash and debt securities with an indicated value of $15 for each of their Telex shares.

The plan would boost Telex’s outstanding debt by about $775 million to nearly $900 million, sharply diminishing the company’s attractiveness as a takeover target.

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