Pennzoil Hits Texaco Over Stock Frenzy : Liedtke Sees Little Chance of Settling, Lengthy Court Fight
Pennzoil accused Texaco on Wednesday of “creating the circumstances” that led to what it called “irresponsible and manipulative trading” that has sent Pennzoil’s stock price on a roller-coaster ride this week. The company asked federal agencies to investigate.
Meanwhile, Pennzoil Chairman J. Hugh Liedtke said he now sees “no reasonable likelihood” of a settlement with Texaco and instead believes that the two companies are in for a lengthy appeals battle. In a meeting with reporters here, Liedtke admitted to “some disgust” over a cash merger offer that Texaco had proposed Tuesday in exchange for Pennzoil’s dropping of an $11.1-billion state court judgment against the much-larger oil company.
Liedtke’s comments came in a meeting with reporters just minutes after Pennzoil formally asked the Securities and Exchange Commission, the New York Stock Exchange and the National Assn. of Securities Dealers to investigate alleged “manipulative trading activity” in Pennzoil’s stock.
Pennzoil claimed in a letter sent by telex to those agencies at 3:30 p.m. Houston time that “irregular” action in its stock was triggered by “false rumors of a merger or settlement” of the lawsuit between the two companies.
No Specific Evidence
Those leaks, Pennzoil said, “must have emanated from the Texaco side” because of the “content and nature of some of the information leaked” to Wall Street. However, Pennzoil cited no specific evidence that Texaco had leaked the information or started the rumors.
In trading on the New York Stock Exchange this week, Pennzoil shares closed Monday at $63.25 a share, soared to $83 on Tuesday and then fell back to $74.50 on Wednesday.
Texaco, whose offer to end its hostilities with Pennzoil by merging the two companies was unanimously rejected Tuesday by Pennzoil’s board, is “fully supportive of the investigation into the trading of Pennzoil stock,” Chairman John McKinley said in a statement.
As for the allegations that Texaco had a hand in the unusual trading, however, a company spokesman said that Texaco “strongly rejects and resents the suggestion that Texaco or anyone authorized by it was responsible for any action relating to Pennzoil stock trading.”
Pennzoil’s call for an investigation came after federal agencies and the stock exchange were closed Wednesday. Earlier in the day, a spokesman for the New York Stock Exchange said the exchange will conduct an “analysis” of the stock movement, which will take three to eight weeks. The results will be sent to the SEC, he said.
Liedtke said Pennzoil twice asked the NYSE to halt trading Tuesday, but the requests were denied, apparently because the company said it didn’t know what was causing the unusual trading. A spokesman said the exchange believes that it acted responsibly.
Wednesday’s developments follow three weeks of efforts by the two companies to amicably resolve litigation filed by Pennzoil two years ago. The Houston oil company in early 1984 accused Texaco of sabotaging Pennzoil’s planned merger with Getty Oil, which Texaco ultimately acquired.
In late November, a Houston jury agreed and awarded Pennzoil $10.5 billion in damages plus interest, the largest civil award in U.S. legal history. After a Texas judge upheld that award, the two sides have been meeting almost continually to try to settle the matter out of court.
Tuesday’s cash merger offer by Texaco was the first formal settlement proposal that the Pennzoil board has been asked to consider. It rejected the offer unanimously.
Liedtke told reporters Wednesday that he is disgusted by this turn of events because he thought the two sides were close to settling.
“I had some optimism that at last we had their attention,” he said. But that optimism was shattered Sunday, he said, when, at a negotiating session in Nashville, Tenn., Texaco Chairman McKinley told Liedtke that he planned to make a formal merger offer. Liedtke said he told McKinley then that such a proposal was unacceptable.
Liedtke, as he has since the offer was made during the 2 p.m. meeting of Pennzoil’s board, again declined to provide details of Texaco’s offer. He did say, however, that it was a “cash merger proposal” but that it was “far different” from the transaction “falsely rumored” Tuesday on Wall Street.
Liedtke said Pennzoil has “repeatedly advised” Texaco that it considers a cash merger offer of any type unacceptable. So “they knew perfectly well it would be rejected.”
McKinley’s statement said Texaco is “surprised at Pennzoil’s characterization of our settlement discussions. Texaco has dealt in good faith in all settlement negotiations and all discussions on our part have been sincere, realistic and substantial.”
The two sides return to court in New York today.
Times staff writer John Broder in New York contributed to this story.
