Who dares wins Wall St

IT IS five years since Sir James Goldsmith and friends, in a personal bid of £13bn for BAT Industries, attempted the same audacious ploy that is now being mounted by Kirk Kerkorian and Lee Iacocca,

BAT saw off that foray, but the shock helped the tobacco giant to accelerate the sale of its failed diversifications into paper and retailing, and hastened the promotion of Martin Broughton as a chief executive from the younger generation.

Chrysler may be about to go through a similar catharsis, but it is by no means an uncommon experience on Wall Street, where the investment banks are much more willing than their City merchant banking counterparts to go along with corporate raiders' schemes.

As Warburg has found to its cost this year, when its own merger discussions with Morgan Stanley publicly broke down, the City exacts a terrible price from anyone associated with failure. On Wall Street, however, they are more likely to be praised for having a go, no matter how flaky the scam.

Goldsmith was more of an asset-stripper than a greenmailer, but he led the way. In 1980 he bid for Diamond International, a forest products company. That brought him in contact with the securities house Drexel Burnham Lambert, where a bright young executive called Michael Milken had discovered the joys of deep-discount bonds - later notoriously known as junk bonds. These were bonds secured on the assets of the bid target, but because of their high risk they had to carry a high rate of interest - hence, "junk".

This new instrument gave every sharp-eyed entrepreneur the money to make a bid for any company, however big, because they would effectively be trying to buy it with its own money.

T Boone Pickens was among the first raiders in the 1980s to use junk bonds, in a 1983 run at Gulf Oil. Gulf was eventually rescued by Chevron for $13bn, then the largest US takeover.

While Goldsmith never stooped to using junk bonds, and denied being a greenmailer, he created a threat which lesser beings used to bluff companies into buying them off. This is the classic greenmail tactic, and may be Kerkorian's intent.

These schemes were manna to the US banks and securities houses, for they had the great virtue of encouraging more deals.

But in 1990 Milken was sentenced to 10 years in prison for what was revealed to be a huge insider-dealing scandal on the back of the junk-bond craze.

The whole merger and debt frenzy of the 1980s suddenly halted. No one wanted to be associated with an activity that could carry a jail term.

While there is no question of illegality behind the Kerkorian bid for Chrysler, many on Wall Street will be uncomfortably aware that this could again be the beginning of a long and a very slippery slope.