TWA Will Acquire Texaco Stock From Holmes a Court : $348-Million Deal by Icahn Raises Airline’s Stake to 7.4%
In a move that intensifies the pressure on Texaco to settle its $10.3-billion court battle with Pennzoil, New York financier Carl C. Icahn said Wednesday that his Trans World Airlines has agreed to acquire 12 million Texaco shares from the troubled oil giant’s largest shareholder, Australian investor Robert Holmes a Court.
Added to the 5.9 million shares TWA already owns, the $348-million acquisition brings the company’s stake in Texaco to almost 7.4% and makes TWA Texaco’s largest shareholder. In addition, Icahn said, TWA has the right of first refusal to acquire Holmes a Court’s remaining 12.1 million Texaco shares.
The announcement came as only a mild surprise to Wall Street. Holmes a Court, while Australia’s wealthiest financier, is believed to have suffered paper losses exceeding $600 million in last month’s stock market crash and so had put Texaco and several other holdings on the block.
Icahn had been rumored, along with Sir James Goldsmith, the British financier, to be interested in the Texaco stake because the market crash blunted his plans to take TWA private, leaving TWA with a horde of cash.
Owns Pennzoil Stock
TWA declined to say why it purchased a 4.9% stake in a company that is in bankruptcy proceedings--and thus is not paying shareholder dividends--and is embattled in the largest court case on record. Marsha Hewitt, TWA’s associate general counsel, said the company’s intent won’t be disclosed until TWA files required documents with the Securities and Exchange Commission later this week.
But analysts and lawyers familiar with the Texaco-Pennzoil battle paint three scenarios--all of which they say could influence the outcome of the dispute.
Icahn, the scenarios go, will actively work to orchestrate a settlement between the warring companies, attempt a takeover of Texaco or play a passive role--simply locking himself into a potentially lucrative hedge in the fight by also buying several million Pennzoil shares.
Icahn was widely rumored on Wall Street on Wednesday to be holding a stake in Pennzoil as well. Well-placed sources said Icahn does own a very small share of Pennzoil’s stock.
Those who support the theory that Icahn will play an activist role in trying to orchestrate a settlement point to his record. Icahn is no shrinking violet.
“Sitting back and watching the action, as Holmes a Court did, is just not his style,” observed Barry Sahgal, an oil analyst with the New York firm of Ladenburg, Thalmann. “He certainly tried to play a role at USX and it’s my belief that he’s going to be the orchestrator of a new order within Texaco.”
Icahn last year took a major position in USX, the former U.S. Steel, and used that stake to exert pressure on the company to undertake a major restructuring. USX management fought him and he later sold his stake.
By contrast, Holmes a Court said from the start that his purchase of Texaco stock was for investment purposes only. He remained true to his word and even wrote a forceful letter to Texaco’s management in July denying suggestions by Pennzoil that he posed a threat to Texaco’s independence.
Frederick P. Leuffer is one securities analyst who expects Icahn to behave more like Holmes a Court in his dealings with Texaco.
“He would be very limited in terms of being able to play an active role in instigating a settlement of a company in bankruptcy,” said Leuffer, an analyst with the C. J. Lawrence brokerage firm.
Price Tag Cited
Nor does he foresee Icahn launching a takeover bid. The $20-billion-plus price tag Leuffer puts on a takeover of Texaco is “a big deal even for Carl Icahn,” he said.
And some bankruptcy lawyers say price may not be the biggest obstacle.
“Texaco has not even been able to get (permission from the court to give employees) tin parachutes” as protection against a takeover, said one bankruptcy lawyer familiar with the case. “How would anyone ever push through a takeover?”
For those reasons, Leuffer thinks that Icahn is simply taking advantage of the market’s post-crash blues to make a smart investment.
He bought the 12 million Texaco shares for $29 each. That is $18.50 a share off the stock’s high for the year and $8 a share less than was paid by Holmes a Court, who lost $96 million on the deal.
Just before the Oct. 19 market crash, Texaco stock was trading for about $36 a share. It subsequently fell to a low $27 and bounced back to $29 at the close of trading Tuesday.
Investors greeted TWA’s news enthusiastically but not as vigorously as some analysts expected. Texaco’s stock shot up $1.75 a share to $30.75 immediately after the news and closed at $30.625, up $2.125 for the day. But Sahgal said he was disappointed that trading in the stock was much lighter than he anticipated, a sign that investors aren’t convinced that Icahn will succeed in prodding the two companies back to the bargaining table.
Texaco, for its part, would say only that it will have no comment until it has a chance to review TWA’s filings with the SEC.
