Lambasting the Texaco bankruptcy plan that he helped design as an "insult to shareholders' integrity and their dignity," Trans World Airline Chairman Carl C. Icahn said Wednesday that he "without a doubt will vote against" the plan unless Texaco shareholders are allowed to simultaneously vote on a rival plan that he now favors.
If his request is denied, Icahn said, he will be content to watch the reorganization plan and its cornerstone, the Texaco-Pennzoil settlement proposal, die and the bitter fight between Texaco and Pennzoil over the rights to Getty Oil revert to the courts.
Icahn, by far Texaco's largest shareholder with 15% of the company's shares, argued at a bankruptcy court hearing here that Texaco shareholders are entitled to choose between his recently crafted proposal for Texaco's reorganization and the hard-won pact signed last month by Texaco and Pennzoil. Both plans propose settling Texaco's multibillion-dollar battle with Pennzoil for $3 billion and are virtually identical except that Icahn's also would strip Texaco of its anti-takeover provisions.
"We all want to settle this case," Icahn asserted, but for Texaco to insist that its plan be considered first is no less than a "tyrannical act."
For U.S. Bankruptcy Court Judge Howard Schwartzberg, the question is whether Texaco lost its right to put its own bankruptcy reorganization plan to a shareholder vote ahead of rival plans when it teamed up with its biggest creditor, Pennzoil, in crafting the plan.
Schwartzberg told reporters that this is a novel argument that he hasn't encountered before in bankruptcy proceedings. But after eight hours of arguments, Schwartzberg said he needs time to weigh the evidence and will decide within two to three days whether to give Icahn the green light on his alternative plan.
The New York financier also startled the courtroom by testifying that Texaco Chief Executive James W. Kinnear offered to sell Texaco to Icahn for $60 a share--an assertion Kinnear denied in a statement.
And under questioning by Texaco lawyers designed to show that Icahn is actually interested in putting Texaco in play as a takeover target, Icahn said he has had several meetings with investment banks and firms to discuss Texaco's assets--including two meetings with Occidental Petroleum Chairman Armand Hammer. Occidental later issued a statement saying it had "no comment" on Icahn's assertions.
Icahn said he met for about 45 minutes last month with Occidental's president, Ray R. Irani, and Hammer to discuss Occidental's possible acquisition of Texaco's Texaco Canada unit. The meeting, at Icahn's home, was arranged by Leon Black, head of corporate finance for Drexel Burnham Lambert. "Nothing of substance came of it," Icahn said.
But about three weeks later, Icahn said he called Irani to suggest that Occidental think about buying all of Texaco.
That conversation stemmed from a conversation Icahn says he had with Kinnear in early January--a conversation Kinnear says he never had. Icahn testified Wednesday that Kinnear asked Icahn to sell his stock back to Texaco and when he refused, Kinnear allegedly said, "if you think the company's so great, why not buy it?"
Shortly after, Icahn said, he called Irani, relayed the gist of the conversation and agreed to meet with Irani and Hammer in New York the following day. But by the time the three met, he said, Icahn had further heard from Kinnear and was convinced that the Texaco chief executive wasn't serious about selling.
Icahn, a vocal advocate of shareholder rights, claimed Wednesday that he began buying Texaco stock primarily because he saw an opportunity to install shareholder rights provisions as Texaco emerged from bankruptcy.
"I thought I could help with a settlement, but also . . . I saw this as an opportunity to implement corporate governance changes."
Icahn said he began lobbying against a plan he had supported when he realized he had been misled.
"Right until the very end" of the negotiations that led to a deal between Texaco and Pennzoil, "I thought there were going to be corporate governance (provisions) in the plan," he said. "But at the last minute, Hugh (Liedtke, Pennzoil's chief executive) said, 'sorry, Carl, they took them out."'
Icahn owns about one-seventh of Texaco's stock. But he said that based on the calls and letters he has received from other Texaco shareholders since the settlement plan was filed, he figures he speaks for the interests of the owners of more than half of Texaco's stock. But Wednesday Icahn and his legal defenders had few supporters.
Both Pennzoil--which is Texaco's largest creditor and the joint author of the Texaco reorganization plan--and the committee representing all Texaco creditors oppose Icahn's plan. And just hours before, Texaco had struck a pact with the other shareholders heavily represented in Texaco's bankruptcy proceedings: the court-appointed equity committee.
The committee did persuade Texaco to change its bylaws to prohibit so-called greenmail payments to unwanted suitors, rescind a so-called poison pill provision designed to thwart hostile takeovers and require that all holders receive equivalent payment for their shares in a takeover regardless of how the deal is constructed.
It also won Texaco's assurance that it won't oppose a shareholder proposal at the company's next annual meeting that changes in the company's bylaws require only a two-thirds vote of shareholders instead of the current 80%.
Those are changes Icahn also wanted. But he argued Wednesday that the equity committee should have held out for much more. The staggered election of Texaco directors and the prohibition against shareholders being able to call special meetings--both anti-takeover defenses--are among his biggest pet peeves.