Decision Could Hinge on Texaco Litigation : Pennzoil Considers Splitting Up Into 4 Entities

Pennzoil Co. is considering a restructuring that would split up the company into four separate, publicly traded businesses, a spokesman said Friday.

Confirming remarks made by Pennzoil Chairman J. Hugh Liedtke in an interview with Dow Jones & Co., Pennzoil spokesman Mickey Gentry said: “Liedtke isn’t saying he’s going to do it. It’s just a possibility.”

Liedtke has stated previously that Pennzoil is considering some form of restructuring that might include spinning off one or more of its four divisions, but that the timing and nature of the change would depend partly on its effort to enforce an $11-billion judgment against Texaco Inc.

Oil industry analysts have said the restructuring strategy would increase the shareholder value of Pennzoil. They also have speculated that it would provide a possible way to reach a settlement with Texaco, under which the oil giant would buy one of the Pennzoil businesses at an inflated price.

“This restructuring possibility has been under way for a couple of years at least,” said Bruce Lazier, an oil analyst at the New York investment firm Prescott Ball & Turban. “Liedtke is getting close to retirement and he’s been planning to do this with or without the Texaco thing.”

Houston-based Pennzoil is composed of Pennzoil Co., which includes most of the oil and gas properties; Pennzoil Products, a manufacturing and marketing affiliate; Pennzoil Sulfur Co., which handles sulfur operations, and Richmond Development Corp., which primarily handles support for the other entities, real estate, and gold-mining operations in Indonesia.

Under one option being considered, the four divisions each would become an independent company and be publicly traded, much like Battle Mountain Gold was spun off from Pennzoil, Gentry said.

He said that if it appears the litigation with Texaco will extend over a “long, long drawn out period, then we’ll proceed with restructuring.”

In 1985, a Texas state jury awarded Pennzoil $10.53 billion after determining that Texaco unlawfully interfered with Pennzoil’s attempted merger with Getty Oil Co.

A Texas appeals court in Houston upheld most of the award in February, but reduced punitive damages, making the total $8.5 billion. With interest, the judgment is about $11 billion, the largest in U.S. history.

White Plains, N.Y.-based Texaco, the nation’s third-largest oil company, filed for protection under Chapter 11 of the U.S. Bankruptcy Code in April as part of a strategy to fight the judgment.