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Hearing Adjourned; Texaco and Pennzoil Talk

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Times Staff Writer

A federal judge on Friday adjourned a hearing on whether to bar enforcement of Pennzoil’s $11.1-billion damage award against Texaco after the two companies entered into what appeared to be serious talks on a settlement.

U.S. District Judge Charles L. Brieant said he decided to hold off on a decision “in the interests of fairness to both parties and so as not to impede” the success of the negotiations. Both Texaco and Pennzoil had agreed to the adjournment.

Earlier this week, Texaco obtained momentary relief from its legal and financial difficulties after Brieant issued a temporary restraining order that prevented Pennzoil from slapping liens on any of Texaco’s property. The order also suspended the Texas court’s requirement that Texaco put up a $12-billion bond while it pursues its appeal.

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Texaco argued that its survival would be in jeopardy if either liens were imposed or the bond enforced.

Brieant set the hearing for Friday to determine whether his temporary order should be strengthened into a preliminary injunction. With the adjournment, Brieant’s temporary restraining order remains in effect; the judge did not schedule another hearing date.

Evidence that negotiations had begun in earnest seemed to indicate at least some improvement in Texaco’s outlook, and on Friday its stock edged up 50 cents to $30.625 on the New York Stock Exchange.

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“I assume there is going to be a settlement,” said William Hyler, analyst with Oppenheimer & Co., a brokerage firm. “It is in the best interests of everyone to have a settlement. I think within a month there should be something.”

Rosario Ilacqua, analyst with the investment firm of L. F. Rothschild, Unterberg, Towbin & Co., added: “It’s the first indication that we’ve had some serious talks.”

Texaco has been under extraordinary pressure since a Houston jury found in November that the White Plains-based company had unlawfully impeded Pennzoil’s proposed acquisition of Los Angeles-based Getty Oil in 1984. Texaco ultimately purchased Getty for $10.1 billion.

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The jury awarded Pennzoil $10.53 billion in damages and $600 million in interest. The award was confirmed on Dec. 10 by state Judge Solomon Casseb Jr., who had presided over the latter part of the trial in Texas.

In the wake of the ruling, Texaco’s debt ratings have been cut and the oil company has sought new sources of short-term cash. Texaco and a 30-member bank syndicate led by Manufacturers Hanover Trust were expected to sign a $1.7-billion loan package on Friday. While the agreement had not been concluded as of Friday evening, a Texaco spokesman said that “discussions are progressing well. We expect to complete them shortly.”

The Texaco-Pennzoil fight has attracted wide attention because it could have a long-lasting impact on contract law and corporate mergers, not to mention Texaco’s survival. On Friday, Judge Brieant’s courtroom in suburban White Plains was packed with lawyers, some of whom came simply as curious spectators.

But the chief action was outside the courtroom. About 15 attorneys for each side met in a conference room. After 35 minutes, the lawyers filed out and Brieant said: “The attorneys have informed the court informally that their clients are still having discussions with each other, looking towards the amicable settlement and disposition of all the underlying litigation.” Following the session, Texaco Chairman and Chief Executive John K. McKinley declined to comment except to say that both sides had agreed during the closed session not to talk about the current discussions. Neither Texaco lawyer David Boies nor Pennzoil lawyer Arthur Liman would comment.

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