Texaco, Pennzoil Inching Toward a Deal : Shareholders’ Adviser Confident That Deal Can Be Reached Soon

Texaco Inc. and Pennzoil Co. on Thursday appeared to be closer to an agreement that would resolve their multibillion-dollar dispute and get Texaco out of bankruptcy court, officials close to the negotiations said.

“We believe we have reached a substantive agreement with not just Pennzoil, but with all parties,” said Wilbur Ross, financial adviser to a committee representing Texaco shareholders.

He said the committee expected a compromise plan sanctioned by Texaco would be filed for a hearing before U.S. Bankruptcy Court Judge Howard Schwartzberg “if not tomorrow, within a couple of days.”

A Pennzoil spokesman was more cautious, however, saying negotiations were still continuing Thursday night.

“We don’t have anybody signed to this thing,” spokesman Robert Harper said.

But, he continued, “We think there will be, and we think there will be a plan and we think all the issues can be resolved.”

“We’re fairly optimistic that a plan will be filed,” he said. “We are very hopeful that all the parties will be in agreement with the plan.”

Efforts Stepped Up

A compromise could end the historic feud between the two oil companies that began nearly three years ago when Texaco bought Getty Oil Co., spoiling Pennzoil’s plans to buy part of Getty. Pennzoil sued Texaco for damages and won a record judgment from a Texas jury that now stands at $10.3 billion.

Texaco’s board was said to be meeting Thursday evening. A company spokesman, who asked not to be identified, said he had no comment on any of the reported developments.

Since last week, officers of the two companies, together with committees representing Texaco creditors and shareholders, have intensified efforts to resolve the long legal battle.

Texaco filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code in April to avoid having to post a potentially ruinous security bond equal to the Pennzoil judgment.

Over the past week, attention has been focused on a proposal under which Texaco would pay Pennzoil $3.001 billion to settle the judgment and another $2 billion for trade-creditor debt, interest payments and other obligations.

The plan also contained elements proposed by the two committees that had drawn fire from Texaco’s management and from financier Carl C. Icahn, a takeover strategist who is Texaco’s largest shareholder.

Texaco, which objected to certain provisions, also devised a counterproposal containing terms that, if approved by shareholders, would keep the case in court for some time--thus preventing Pennzoil from getting any money.

Ross said the new compromise plan had eliminated or modified controversial areas. One consisted of covenants that the creditors committee wanted, limiting the company’s ability to borrow money.

This, it believed, would prevent management from undertaking financing for post-bankruptcy restructuring, thereby weaking the value of outstanding debt.

“That’s out,” Ross said.

The shareholders committee also dropped its demands that the company drop certain anti-takeover provisions in its charter, and that Texaco expand its board to include 12 new directors--chosen by the shareholders committee.

Texaco objected to both provisions. The latter was especially criticized by Icahn, who told the committee that such a move would be potentially ruinous to the company.

In the new agreement, Ross said, the committee asks the company to allow shareholders to vote on the anti-takeover provisions, and that it abide by the shareholder’s wishes.

Isn’t a Demand

“What we’re suggesting is that Texaco subject itself to a shareholder vote on the various restrictions and that they abide by it,” Ross said. “It’s a request, not a demand, because the committee feels the most important thing is not to jeopardize the plan.”

Dennis O’Dea, an attorney for the group, said the proposal was discussed in meetings Thursday with Texaco, Icahn, Pennzoil Chairman J. Hugh Liedtke, and representatives of the creditors committee.

“Everyone more or less reached the conclusion that there’s room to make a deal on all the substantive issues,” he said.