Texaco Submits Reorganization Plan to Judge : Icahn Increases Stake to Match Voting Rights

Texaco Inc. on Monday filed a reorganization proposal designed to settle its multibillion-dollar dispute with Pennzoil Co. and bring the company out of bankruptcy by early spring.

The filing came as Texaco’s largest shareholder, financier Carl C. Icahn, announced that he had raised his ownership stake in the company to match the 12.3% voting control he had been wielding over Texaco’s stock.

Icahn said previously that he hoped to increase his holdings to more than 25%, and analysts suggested that the latest move would keep pressure on Texaco’s management to increase the value of Texaco shares.

Under the reorganization plan announced Saturday, Texaco would pay Pennzoil $3 billion and Pennzoil would drop the $10.3-billion damage judgment it won against the White Plains, N.Y.-based oil company.

Wall Street reacted to the settlement by sending the stocks of both companies lower Monday. In nationwide trading of New York Stock Exchange-listed issues, Texaco closed at $37.50 a share, down $1, and Pennzoil was down $1.875, at $77.50 per share.

Number of Alternatives

Analysts said traders cashed in their profits after having driven the stocks higher last week in anticipation of the settlement.

The proposal, which was filed at the U.S. Bankruptcy Court in White Plains, also would:

- End all litigation between the two companies.

- Indemnify Texaco’s officers, former Getty officers and major Getty shareholders against any legal action for their roles in the case.

- Retain anti-takeover provisions in Texaco’s charter.

- Enable Texaco to seek financing for the reorganization “in any lawful manner.”

Although this would include issuing new debt, the document said Texaco’s management would review a number of alternatives, including the sale of assets and other steps that would soon “establish and maintain an investment grade rating on their outstanding debt securities.”

Texaco President James W. Kinnear said Saturday that the company intended to restructure to “enhance shareholder value.”

On Monday, Standard & Poor’s Corp. said it was reviewing Texaco’s credit rating with a possibility of raising it.

The rating service said it would be watching how well Texaco succeeded in stopping the erosion of its oil and gas reserve base--so severe that it led to the Getty acquisition--and how deftly Texaco handled the proposed restructuring.

Other “potentially overriding factors for consideration include plans to maximize shareholder values and defensive measures to thwart possible hostile takeover attempts,” S&P; said.

The most visible candidate in that regard is Icahn, whose Trans World Airlines Inc. said it would join ACF Industries Inc.--another business Icahn controls--in buying for $447.5 million the second half of 24 million shares once owned by Australian financier Robert Holmes a Court.

Subject to Approval

The deal increases Icahn’s ownership to about 30 million shares. Voting control remains unchanged, because he acquired voting rights over the new block when he bought the first 12 million shares last month for $348 million.

Both sales are subject to approval under federal antitrust laws.

Icahn previously had acquired 5.8 million Texaco shares on the open market for $193.2 million.

Analysts did not rule out the possibility that Icahn might try to acquire Texaco if he was not satisfied with the board’s performance in cutting debt and raising the value of Texaco’s shares.