Setback for Icahn: Bankruptcy Panel Backs Texaco Reorganization Plan

The bankruptcy committee representing major Texaco Inc. shareholders agreed to back the company’s reorganization plan Friday in exchange for a bigger shareholder voice in corporate affairs and elimination of Texaco’s main takeover defense.

The decision was a setback for Texaco’s biggest shareholder, takeover strategist Carl C. Icahn, who had proposed a rival bankruptcy reorganization that would have stripped the company of all its takeover defenses.

Because any reorganization plan must win shareholder approval before it is endorsed by the bankruptcy court, the committee’s support was seen as a key factor in Texaco’s attempt at persuading the court not to submit Icahn’s plan to shareholders.

Icahn, who controls 13.3% of Texaco’s common stock, said he would press forward with his plan.

U.S. District Judge Howard Schwartzberg has scheduled a hearing for Wednesday to hear Icahn’s request to submit his plan to shareholders.

Icahn has contended that he has wide support from shareholders who do not sit on the committee, but sources familiar with his bid said the panel’s endorsement of Texaco’s plan would make his task more difficult.

The endorsement of management’s plan followed days of intensive, separate negotiations with Icahn and Texaco.

Some of the key issues in the plan still are being negotiated, and the entire package must be approved by the board of directors.

Both plans preserve Texaco’s $3-billion payment to settle a $10.3-billion judgment owed to Pennzoil Co. Texaco filed for protection under Chapter 11 of the U.S. Bankruptcy Code last April because of the jury award to Pennzoil, which said Texaco wrongly interfered with its move to acquire part of Getty Oil Co. in 1984.

Under the committee’s agreement in principle, Texaco’s management will support proposals asking its board of directors to:

- Revoke the company’s “poison pill” takeover defense one year after Texaco emerges from Chapter 11 bankruptcy protection, if the defense has not been triggered by then. The company could not enact a new pill without shareholder approval.

- Enact an anti-greenmail provision to prohibit Texaco from buying stock back from a hostile bidder at an above-market price.

- Allow Texaco shareholders for the first time to call one special meeting a year, if proposed by 20% of the outstanding shares.

- Overhaul the corporate by-laws to require an acquirer to give all shareholders the same price for their stock.

- Extend the life of the shareholder committee beyond the bankruptcy reorganization to serve as a watchdog for putting the agreement into effect. If the board balked, the committee reserved the right to back Icahn’s plan, although the company’s support for the plan indicated a likelihood of board approval.

Texaco also will ask its board to let shareholders vote at its annual meeting in May on amendments that would make several major changes in its corporate charter.

Those changes would allow shareholders for the first time to vote to remove directors and to fill board vacancies, and eliminate the present staggered terms of the directors, only a third of whom are elected in any one year.

Still being negotiated is a proposal to reduce the current requirement that shareholder proposals garner 80% of the outstanding shares to win approval. The committee wants to change the threshold to a simple majority of the shares being voted at a particular meeting, a much smaller total.

The company’s managers have taken no position yet on the proposals to be submitted at the annual meeting and reserved the right to oppose any of them. However, Texaco agreed to pay for soliciting shareholder participation in the meeting, a key consideration because the charter amendments require approval by 80% of the outstanding shares.

Many of the committee’s provisions were in Icahn’s plan, but his proposal was regarded as much more severe.