Icahn in Court to Fight Texaco Reorganization

Carl C. Icahn, Texaco Inc.’s major shareholder, on Tuesday stepped up his campaign against Texaco’s pending bankruptcy reorganization plan by going to court and reportedly building his stake in the embattled oil giant.

Lawyers for Icahn, who is also chairman of Trans World Airlines, sued to overturn an agreement between Texaco and Pennzoil Co. tied to their historic $3-billion settlement. The out-of-court settlement reached last month arose from Texaco’s 1984 acquisition of Getty Oil Co.

Texaco President James W. Kinnear called the suit “frivolous” and, in a letter to Icahn, accused him of “introducing a fatal element of uncertainty as to whether or not the reorganization plan will be affirmed and Texaco can emerge from bankruptcy at an early date.”

Icahn has already asked the bankruptcy court overseeing Texaco’s affairs for permission to file an alternative reorganization plan that eliminates Texaco’s takeover defenses. Texaco has said Icahn wants to make the company more vulnerable to a hostile takeover.

Separate From Settlement

Icahn on Tuesday asked the court to overturn an agreement in which Pennzoil pledged to support Texaco’s reorganization plan.

Wall Street sources said Tuesday that Icahn bought more Texaco shares to add to his 12.3% holding in the company. While the size of his purchases was unknown, Texaco’s stock was among the most actively traded on the New York Stock Exchange, with its shares up $1.25 to $39 at Tuesday’s close.

David Friedman, Icahn’s lawyer, said the reorganization accord he was challenging was separate from the settlement agreement in which Texaco will pay Pennzoil $3 billion to settle their 4-year-old dispute over Texaco’s acquisition of Getty.

The reorganization pact said the two companies would not agree to “any modification of the plan unless such modification has been agreed to by the other party.”

It also said that neither party “shall vote for, consent to, support or participate in the formulation of any other plan in the reorganization case.”

Icahn said it was the first time the accord had been formally disclosed, but Texaco said the document had been filed with the Securities and Exchange Commission last month.

Although Icahn opposes the reorganization support pact, he has supported the settlement worked out by both companies to end their dispute over Getty Oil.

“What the agreement does is unlawfully restrict the largest creditor in the case (Pennzoil) from considering other reorganization proposals,” Friedman said.

‘Reap Short-Term Profits’

Icahn has requested authority to submit a competing plan for Texaco to emerge from bankruptcy that would rid Texaco of its takeover defense provisions and alter other aspects of the company’s corporate charter.

However, Kinnear told Icahn in the letter that his ownership of both Texaco and Pennzoil stock means he would be “taking money from one of your pockets and putting it in the other” by blocking the plan favored by Texaco. “You are seeking to put yourself in a position to reap short-term profits at the expense of Texaco’s competitive future.”

The reorganization support document, which was signed by Pennzoil Chairman Hugh Liedtke and Kinnear, appears to prevent Pennzoil from backing any of the changes Icahn is seeking to make in the plan.

Friedman said the suit was filed in the U.S. Bankruptcy Court in White Plains, N.Y.

Texaco has said it opposed Icahn’s alternative plan. Pennzoil has said it would only assent to the changes if Texaco agrees and if its $3-billion settlement is not threatened.

Friedman said the suit aims to seek a ruling in bankruptcy court that the accord was illegal and unenforceable because it was never filed with Texaco’s bankruptcy reorganization plan, which included the $3-billion settlement.

Texaco and Pennzoil agreed to settle their dispute last month. Texas courts had upheld a record $10.3-billion award against Texaco stemming from a ruling that Texaco interfered with an agreement Pennzoil had to buy a large stake in Getty Oil. The judgment led Texaco to file for protection under the U.S. Bankruptcy Code.

Questions about the pact arose as Texaco announced on Friday a broad restructuring plan that includes a $4.9-billion charge for the fourth quarter and plans to sell $3 billion in assets.

The restructuring cannot proceed unless Texaco emerges from bankruptcy, and that may be threatened if Icahn wins sufficient support to oppose the current reorganization plan.

Last week, Icahn asked the bankruptcy court for permission to submit his alternative plan. Formal replies to the motion are due Thursday, and a hearing has been set for Jan. 20.

Sources close to Texaco have also said that if one element of the bankruptcy plan were altered, then other elements, such as the $3-billion settlement, could be changed as well.

The plan is subject to confirmation by the bankruptcy court and to approval by two-thirds of Texaco’s voting shares.