Ballots Are In; Judge Will Unseal Texaco’s Fate

Texaco Inc.’s long night under bankruptcy court protection drew nearer a close as the last shareholder votes on a proposed financial reorganization plan were counted Monday.

At a hearing beginning today in White Plains, N.Y., U.S. Bankruptcy Court Judge Howard Schwartzberg is expected to announce the result of that balloting and listen to final comments by parties to the case.

He then must decide whether to confirm the plan, enabling Texaco to emerge from court protection under Chapter 11 of the federal bankruptcy code. The proceedings could end late today, but it is more likely that the hearing will last at least another day.

If events go as expected, Texaco should emerge from bankruptcy in mid-April.

Schwartzberg has overseen the case since it began last April 12, when Texaco filed for protection from its creditors to avoid having to post a multibillion-dollar bond while appealing a $10.3-billion judgment held against it by Pennzoil Co.

The judgment stemmed from a Houston jury’s ruling in November, 1985, that Texaco improperly interfered with a Pennzoil agreement to acquire part of Getty Oil Co., and then bought Getty itself.

In December, Texaco agreed to pay Pennzoil $3 billion to drop the judgment. The settlement was the keystone of an overall reorganization plan that also provides for Texaco to pay its other creditors an additional $2.5 billion.

Even if the balloting falls short of the required two-thirds approval, Schwartzberg could confirm the plan if he deems it fair and equitable.

Overwhelming shareholder approval is expected, though, because it was widely understood that Texaco would be in an even worse position if the plan did not go through by March 30, as agreed in the December accord with Pennzoil.

If the plan fails, the oil giant would either have to pay the full multibillion-dollar judgment or gamble that the U.S. Supreme Court might hear its appeal and ultimately reverse or alter the decision.

In preparing for its emergence from bankruptcy, Texaco announced that it would sell some assets and share others in joint ventures with third parties to raise money to pay off its monumental debts.

Meanwhile, it has had to contend with cantankerous dissatisfaction among many shareholders, who blame its management for the Pennzoil debacle and other problems.

Today’s hearing is likely to focus on issues raised in 15 lawsuits filed by dissident shareholders who blame management for the dispute with Pennzoil and other problems.

In general, the suits oppose provisions in the plan that would free officers and advisers of Texaco, Pennzoil, Getty Oil, the Sarah Getty Trust and the J. Paul Getty Museum from all liability arising out of the Texaco-Pennzoil affair.

Some shareholders are also unhappy with certain anti-takeover provisions of Texaco’s charter and bylaws, which are seen as entrenching management and lessening its accountability.

Especially vocal has been takeover specialist Carl C. Icahn, who controls 14.8% of Texaco’s common stock, making him the company’s largest shareholder.

Texaco announced Friday that it had reached a framework for resolving a dispute with the Internal Revenue Service. In January, the IRS said it was pursuing claims totaling as much as $6.5 billion against Texaco. But Friday it appeared that those claims had been scaled down significantly.

Texaco said it would put into escrow $1 billion, in five annual $200 million installments beginning April 14, while negotiating the dispute after it emerged from bankruptcy reorganization.