Magnetek Inc. stock deal short circuits: claims against former Drexel traders are the culprits.Magnetek Inc. stock deal short circuits Claims against former Drexel traders are the culprits Magnetek Inc., Los Angeles' largest electrical-equipment manufacturer, last week disclosed that its proposed deal to sell a 45 percent stake to a New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of merchant banking firm has run into snags. Kelso & Co. of New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. had agreed to buy 4,580,000 shares of unissued Magnetek stock in January. But the offer was contingent on Adj. 1. contingent on - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress" contingent upon, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent a second agreement to buy another 7,900,000 shares from two partnerships owned by former employees of Drexel Burnham Lambert Drexel Burnham Lambert was a major Wall Street investment banking firm, which first rose to prominence and then was driven into bankruptcy in the 1980s by its involvement in illegal activities in the junk bond market, driven by Drexel employee Michael Milken. Inc. The latter agreement expired April 15. Drexel helped arrange the $88 million in junk-bond financing that launched Magnetek in 1986. Employees of Drexel took an equity stake in Magnetek and would reap approximately 40 times their original investment, at Kelso's buyout price. "Claims have been made against these partnerships in various pending lawsuits," noted a Magnetek statement issued April 16. It said Kelso had requested the litigants consent to the sale of Drexel partnership interests. The lawsuits were not described. Magnetek officials could not be reached for comment by press time. The partnerships are called Magtek Partners and Champlain Associates. They are among the 500 or so partnerships named in a $6.8 billion lawsuit filed by the Federal Deposit Insurance Corp. in January. The bank regulating agency is seeking money from all those partnerships as compensation for losses suffered by S&Ls that bought junk bonds related to the partnerships. The FDIC FDIC See: Federal Deposit Insurance Corporation FDIC See Federal Deposit Insurance Corporation (FDIC). alleged fallen Drexel chief Michael Milken Michael Milken As an executive at Drexel Burnham Lambert Inc. during the 1980s, Milken used high-yield junk bonds for financing and corporate takeovers. While his personal wealth was enormous, he spent two years in prison after pleading guilty to charges of securities fraud. and partnership managers, including the general partners of Magtek and Champlain, "willfully willfully adv. referring to doing something intentionally, purposefully and stubbornly. Examples: "He drove the car willfully into the crowd on the sidewalk." "She willfully left the dangerous substances on the property." (See: willful) and illegally induced S&Ls to purchase billions of dollars of junk bonds by distorting the true value and liquidity of the bonds." A Magnetek spokesman said in March he could not speak on behalf of Magtek or Champlain, whose officers could not be reached. Kelso's investments in public and private companies are worth $7.5 billion, the company stated in January, the month the Magnetek deal was made public. Magnetek officials predicted a late-March closing. Kelso owns a controlling interest controlling interest The ownership of a quantity of outstanding corporate stock sufficient to control the actions of the firm. Controlling interest often involves ownership of significantly less than 51% of a firm's outstanding stock because many owners fail in Earle M. Jorgensen Co., a big steel distributor in the L.A. suburb of Lynwood that was renamed Jorgensen Steel & Aluminum Co. Magnetek's disclosure last week was part of its third-quarter financial report. Magnetek shares that day rose 25 cents to $15.50, near its 52-week high of $16.25. Quarterly sales were up 2 percent to $293 million compared with the year-ago quarter. Net income was up 2 percent to $11 million. Magnetek has had stellar growth. From 1986 to 1991, shareholder equity climbed from $7 million to $146 million. Forbes magazine said Magnetek's 1985-90 equity growth ranked it No. 1 among public companies in L.A. County and No. 6 in the nation. |
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