Icahn Threatens to Foil Accord in Pennzoil Suit

An exasperated Carl C. Icahn on Tuesday threatened to derail any settlement pact between Pennzoil and the committees representing Texaco’s shareholders and creditors unless the equity committee drops its demand for 12 seats on Texaco’s board.

Icahn, Texaco’s largest shareholder, has been instrumental in breaking a months-long impasse in efforts to forge a settlement between Texaco and Pennzoil in their three-year battle over the rights to Getty Oil Co. And he still backs the concept of a $3-billion settlement pact forged--with his help--earlier this week by Pennzoil and the committees representing Texaco shareholders and creditors.

But in a letter to the Texaco shareholders’ committee Tuesday, the New York financier said he won’t support the accord if it contains a provision to drastically alter the composition of Texaco’s board. Giving 45% of the seats on Texaco’s board to shareholders would be “ruinous to the board” and is tantamount to “pushing Texaco off a hot tin roof into a raging fire,” he wrote.

Sources close to the settlement negotiations said bargainers for the equity committee quickly backed off their demand to fill 12 new seats on the Texaco board, which would be expanded to 26.

Addition of 12 Seats Opposed

But it could not immediately be learned whether the committee dropped its proposal altogether or merely lowered its demand. Texaco sources have said its board and management might be willing to expand the board by three or four seats.

But to add 12 board seats and fill them all with shareholders would dilute management’s control and is strongly opposed by the company.

Late Tuesday, Pennzoil said it, too, opposes the shareholders’ proposal.

“If the equity committee would remove its proposal, we believe we can come to a rapid settlement,” a spokesman for Pennzoil said.

Although negotiations among Texaco, Pennzoil and the two committees continued all day Tuesday, sources close to the proceedings said little progress was made.

“There is a lot of jockeying for position going on in these meetings, and the best I can say is that things were moving sideways all day,” said one source close to the negotiations. “But I think it’s wrong to conclude that this pact is in trouble.”

Rather, sources characterized negotiators as frustrated because the price and other key details have been worked out and little remains to be done except settle the board composition matter.

Once a detailed pact is forged, it will be presented to the bankruptcy judge overseeing Texaco’s Chapter 11 reorganization, prompted by a $10.3-billion damage judgment awarded to Pennzoil. And he, in turn, has promised to present it to Texaco shareholders--two-thirds of whom must approve the settlement and reorganization plan before it can be forced upon Texaco.

“Icahn’s objections aren’t a setback,” said one source close to the negotiators. “He is just making public all of our frustrations over one guy’s insistence on turning these peripheral issues into something that has stalled the central issue: a $3-billion settlement.”

The “one guy” is Dennis O’Dea, the Chicago lawyer who is serving as legal counsel to the shareholders’ committee.

Icahn singled out O’Dea in his letter to committee Chairman Robert Norris on Tuesday, and by all accounts, it is O’Dea’s insistence on shareholder representation on the Texaco board that is standing in the way of a final trilateral settlement proposal. O’Dea did not return a reporter’s call Tuesday.

O’Dea, however, told Reuters, “We will not go through with the $3-billion settlement unless a plan goes through that satisfies our issues.”

“Now that a settlement is near at hand,” Icahn wrote Norris, “it would be disastrous for all concerned and unconscionable on your part if you were to condition such a settlement on your being able to further your own ends by placing yourself and Dennis O’Dea, your counsel, or other hand-picked nominees on the board of Texaco.”

Icahn again assured that he is seeking neither control of the company nor a seat on its board. And while noting that he is “a proponent of corporate democracy and of directors being responsive to stockholders,” he urged the committee to drop its demands because “this is not the time for Texaco to find itself with a divided board.”