One Issue Blocks $3-Billion Settlement of Texaco Case

Negotiators for Texaco and Pennzoil late Friday were unable to resolve the only issue that still separates them from a $3-billion settlement of their record $10.3-billion dispute over Getty Oil.

But sources close to the proceedings said they were so close that a plan could be filed with the bankruptcy court today.

Still in contention is about $50 million in interest payments.

The sum represents the difference between Pennzoil’s position that interest should start accruing on the $3-billion debt on the day a reorganization plan is filed with the U.S. Bankruptcy Court in White Plains, N.Y., and Texaco’s argument that interest shouldn’t start mounting until the court confirms the plan, releasing Texaco from bankruptcy proceedings.

The two committees representing Texaco shareholders and creditors agree with Texaco on this issue.

Since Texaco is expected to emerge from bankruptcy proceedings in late March if a settlement is filed with the court no later than next week, the difference amounts to three months’ worth of interest. At an annual rate of 10%--a rate all parties have agreed to--that is about $800,000 a day.

By Friday afternoon, the two sides had drafted a plan. But as of late Friday, neither Texaco nor Pennzoil had budged from their earlier positions and neither had signed it.

Sources close to the proceedings said this version also was unacceptable to the creditors committee because the interest-payment issue still wasn’t resolved to the creditors’ satisfaction.

“We’d have to swallow hard to accept this, and I’m not sure we will,” said a source close to the committee.

The draft settlement plan and reorganization plan arose from an all-night drafting session on Thursday and nonstop discussions on Friday.

In addition to the $3-billion settlement proposal and the unsettled interest payment matter, the plan contains a stipulation that Texaco must review its debt-to-net worth ratio and take steps to reduce it, said Joseph Zweibel, the attorney for the Texaco creditors committee.

Sources close to the proceedings said the negotiators were sidetracked for several hours Friday morning on a last-minute change Texaco made to the pact that the other parties found unacceptable.

Texaco, the sources said, excised from the proposal a joint demand by the oil giant’s largest shareholder, Carl C. Icahn, and by the committee representing Texaco shareholders that Texaco’s anti-takeover provisions be put to a shareholder vote.

“So rather than being able to have a full day of discussions on the matter at hand (the interest question), we had to deal with this (“poison pill”) issue,” one negotiator said.

Although the negotiators are said to be weary and frustrated and had made little progress on Friday, sources in all four camps say they are certain a settlement is imminent because no one is balking at the $3-billion price tag--the cornerstone of the plan.

“When there is basic agreement on a settlement, and at a certain amount, the other issues are less important and eventually everyone will stop quarreling and file this thing,” Zweibel said.

In another sign that the negotiators are hopeful of a quick settlement, Texaco contacted a judge late Friday to prepare him for a late-night filing, sources said.

The final agreement is now expected to be signed not just by Pennzoil and the two advisory committees--but by Texaco as well.

“Once Texaco saw the writing on the wall, they stopped fighting this bitterly,” Zweibel said.