Texaco Posts Pennzoil Suit Appeal Bond : More Than $1 Billion of Canada Unit Stock Used as Collateral
Texaco put up more than $1 billion of a Canadian subsidiary’s stock Wednesday as security to appeal an $11.1-billion judgment that Pennzoil won against the country’s third-largest oil company.
Texaco attorneys deposited 65 million common shares of Texaco Canada at the White Plains, N.Y., offices of U.S. District Judge Charles L. Brieant, who on Jan. 10 threw out a Texas legal provision that would have required Texaco to post a $12-billion appeal bond.
Brieant called the higher amount an “absurd” requirement. He said the $1 billion would have to be filed by Wednesday.
After Texaco posted the stock, Brieant signed a statement saying he accepted it “in good negotiable form and ordered (it) impounded this date.”
Papers filed with the stock said each share was worth $17.25, as quoted Tuesday on the American Stock Exchange, making the total value of the security $1.12 billion. In trading Wednesday, Texaco Canada stock closed at $17.50.
Exceeded Requirement
John P. O’Mahoney, a Texaco spokesman, said the amount exceeded Brieant’s requirement “to account for any possible fluctuation in value, and we wanted to be absolutely sure that what we gave the court was worth $1 billion.”
A statement that Texaco issued from its White Plains headquarters said the company owns 78% of the about 121 million outstanding common shares of Texaco Canada. The rest is held by individuals and institutions.
The statement said that Texaco will retain its interest in the subsidiary and that the use of Texaco Canada stock as collateral “will have no operational or financial impact on Texaco Canada.”
No Comment
Robert Harper, a spokesman at Pennzoil’s headquarters in Houston, said he had no comment on Texaco’s bond posting. But Mark Belnick, one of Pennzoil’s attorneys, said: “We have taken a position that the federal district court is without jurisdiction in this case.”
The U.S. 2nd Circuit Court of Appeals in New York is scheduled to hear Pennzoil’s appeal of Brieant’s ruling next Tuesday.
The two oil companies are fighting over Texaco’s acquisition of Getty Oil for $10.1 billion in 1984 after Pennzoil had reached what it considered an agreement to buy about half of Getty.
Last year, a Texas state jury found that Texaco had wrongly interfered with the Pennzoil-Getty deal and said that Texaco should pay $10.53 billion in damages to Pennzoil. The trial judge added $600 million in interest to what is the biggest civil judgment awarded in U.S. history.
Under Texas law, Texaco would have had to put up $12 billion in security to protect Pennzoil’s interest in the award while Texaco appealed the damage judgment.
Brieant’s ruling, which also extended an order barring Pennzoil from seizing Texaco assets, was a significant boost for Texaco in the dispute.
Oil industry analysts viewed Texaco’s use of its Canadian subsidiary’s stock to satisfy the bond requirement as the easiest and least expensive alternative that Texaco faced. The company has encountered financial difficulties since Pennzoil won the judgment, and the value of Texaco stock has fallen.
“The Canadian stock is a stock of a subsidiary that is publicly traded and has not been impacted to the same extent as the U.S. stock,” said Frank P. Kneuttel, an analyst with Prudential-Bache Securities.
Daniel McKinley, an analyst with Smith Barney, Harris Upham & Co., said he believed that Texaco used the Canadian unit’s stock “because it’s required to put up $1 billion, because it has a third-party market value and because there’s no cost to Texaco for putting it up.”
The bond posting came one day after a Texas state appeals court rejected Texaco’s motion to hear arguments over the qualifications of state District Judge Solomon Casseb Jr., who presided over the initial trial.
