Pennzoil Co. said Friday that it had agreed with a committee representing Texaco Inc. shareholders on a proposal to settle the legal dispute between the two companies for $3 billion in cash and getting Texaco out of bankruptcy court reorganization.
Texaco's management criticized the plan late in the day, saying the proposed payment was too much.
The proposal would have to be approved by Texaco's creditors before it could be submitted to the court. If the court accepted it, the plan then would have to be backed in a stockholder vote by two-thirds of Texaco shares.
Texaco filed for protection from its creditors under Chapter 11 of the federal bankruptcy code in April to avoid having to post a $10.3-billion security bond in a suit filed by Pennzoil. Texaco contended the bond, which would have been required to appeal, could ruin the company.
The judgment stemmed from a Houston jury's November, 1985, verdict that Texaco improperly interfered in a merger between Pennzoil and Getty Oil Co. Texaco later acquired Getty.
In a telephone interview from Pennzoil's headquarters in Houston, spokesman Robert Harper said the proposal would be contained in a reorganization plan that could be filed by the end of this week.
"We think the Texaco creditors committee will also join in the reorganization plan," Harper said.
Joel Zweibel, an attorney representing the creditors committee, said the group was not ready to comment on the plan. He said members will study it over the weekend and meet Monday to discuss it.
In a statement from its headquarters in White Plains, N.Y., Texaco said that Pennzoil had proposed the $3-billion settlement earlier last week but that Texaco believed further negotiations "could lead to a more economic settlement."
Texaco said the plan announced Friday had been prepared without its involvement, despite an order by the bankruptcy judge that the oil company's management be included in any such negotiations.
It also reiterated its support for a settlement formula that would include a non-refundable payment to Pennzoil in return for an upper limit on Texaco's liability if it lost an appeal to the U.S. Supreme Court.
Texaco said it planned to pursue the appeal despite the settlement plan.
Pennzoil's board voted Wednesday to accept the proposed settlement, Harper said.
"It was a business judgment of the board that this was in the best interests of Pennzoil shareholders," he said.
Although Pennzoil officials said they believed the judgment would stand up on appeal to the U.S. Supreme Court, they also were concerned about factors such as delays in payment, Harper said.
"Pennzoil's gone for four years without seeing one red cent," he said.
Earlier in the day, rumors that a new settlement proposal was in the works sent the stock of both companies higher on Wall Street.
Texaco stock closed Friday at $35.87 1/2 a share, up $3.87 1/2, while Pennzoil's stock rose $6.75 a share to $79.75.
Analysts said Texaco's stock rose because the price had been reflecting the impact of the $10.3-billion judgment Pennzoil holds against Texaco.
Without that judgment, its value would be much higher--though opinions differ on how much, because of differing ways of calculating values.
Earlier this month, U.S. Bankruptcy Judge Howard Schwartzberg gave Texaco a 40-day extention on its exclusive right to come up with its own reorganization plan.
But he said that if Pennzoil and the creditors committee agreed on a plan that included a settlement he would drop that exclusivity period in order to let Texaco shareholders vote on it.
Last Monday, Schwartzberg expanded his ruling, saying Texaco's shareholder committee would have to agree on the plan as well.
Under his order, Pennzoil and the two committees must file their joint proposal with the court. Texaco management then would have a chance to comment. Schwartzberg would be free to put the proposal before the shareholders.
After the Texas Supreme Court refused to hear an appeal of the judgment last month, Texaco said it would take the case to the U.S. Supreme Court.
It was expected to file its appeal in January. But there was no guarantee the high court would agree to hear the case, which would mean the $10.3-billion judgment would stand.
Pennzoil had proposed a settlement under which it would accept a non-refundable, $1.5-billion payment in exchange for putting a "cap" of $5 billion on the total liability Texaco would face if it lost the appeal. The cap would include the initial payment.
Texaco's latest position was to support a creditors committee suggestion of a non-refundable $1-billion base payment in exchange for a $3.5 billion limit.