Holders Give Final Approval to Texaco Restructuring Plan

Texaco’s plan to emerge from its year-long bankruptcy seemed all but assured Tuesday after shareholders gave it lopsided approval and most other opposition evaporated.

Final approval was put off for at least a day, however, as attorneys for shareholder Carl C. Icahn argued in a bankruptcy court hearing against provisions of the plan that could prove major obstacles to any subsequent takeover attempt by Icahn or others.

Texaco announced that its restructuring plan was approved by 96% of the 181 million shares of stock voted by shareholders. Icahn himself, the largest single shareholder, voted to approve the plan while continuing his objection to part of it, his attorney said.

The reorganization plan is widely expected to be approved by U.S. Bankruptcy Judge Howard Schwartzberg, perhaps as early as today. Texaco would then formally leave the protection of the bankruptcy courts in 15 days and begin to restructure itself.

James W. Kinnear, Texaco’s president and chief executive, called the overwhelming vote an example of “the overwhelming support that we have had from a majority of our shareholders--throughout the most difficult times for our company.”

However, the vote didn’t necessarily signal an endorsement of management or an end to the turmoil. Analysts said it reflected the eagerness of shareholders to get the company out of bankruptcy and proceed with the restructuring that is intended to make Texaco more competitive.

“I don’t know that it was a vote of confidence in management as much as it was a belief that it is the best alternative for shareholders,” said analyst Thomas Tracey of John S. Herrold Inc., Greenwich, Conn. “They want to see the restructuring take place.”

The broad outline of the reorganization plan was unveiled in January, soon after the company reached an out-of-court settlement with Pennzoil of their epic legal battle stemming from Texaco’s takeover of Getty Oil Co. in 1984.

A Texas jury, finding that Texaco had improperly interfered with a Pennzoil agreement to take control of Getty, awarded a record $10.3-billion judgment against Texaco in November, 1985. The company entered bankruptcy in April, 1987, before agreeing out of court to pay Pennzoil $3 billion.

Texaco’s reorganization plan calls for the sale of at least $3 billion in assets to pay off Pennzoil. Negotiations on the sale of half-interests in some of Texaco’s U.S. refineries to Saudi Arabia or other foreign producers, which could bring upwards of $1 billion, have been under way for weeks. On Monday, the company began mailing solicitations to sell more than 600 oil and natural gas properties in 15 states and the Gulf of Mexico.

However, Icahn and some shareholder groups have fought the reorganization plan because it includes protection from legal action against executives of Texaco, Getty and other parties. Icahn also objected Tuesday to terms of a bank loan to Texaco which would discourage a change in control of the company.

The hearing, which began Tuesday, was held in a makeshift courtroom in the grand ballroom of the White Plains Hotel in the town where Texaco is headquartered. Schwartzberg, sitting on an elevated platform covered with a red tablecloth, presided over seven hours of testimony attended by about 50 lawyers and 200 others crowded into the windowless room.

However, the event was quieter than some expected. Icahn didn’t attend, and 16 shareholder suits were dropped before the hearing even began. The suits, objecting to the legal releases for executives from Texaco and other firms, were dropped after a Texaco insurer and Getty entities agreed to pay part of the shareholders’ legal fees.

“We think it went extremely well. We are well positioned to get out of Chapter 11 by the end of the week,” said Texaco bankruptcy lawyer Harvey R. Miller after Tuesday’s testimony.

David Friedman, attorney for Icahn, objected to terms of a $3-billion, three-year loan from a consortium of banks to cover Texaco’s payment to Pennzoil. A covenant lets the banks call in the loan if 30% or more of the equity in Texaco or 30% of its board comes under the control of a single voting bloc.

Attorneys close to the case call it “a de facto poison pill” because it would discourage any would-be takeover attempts. The long-term intentions of Icahn, who holds 14.8% of Texaco and is pushing his own slate of directors, remain hotly debated. One source said a similar provision dissuaded Icahn in his failed effort to take over USX Corp.

But supporters of the reorganization plan objected to Friedman’s effort to characterize the loan provision as one inserted at the last minute, and said it was insisted upon by the banks themselves.

“It was not an issue for Texaco because it was non-negotiable. Our view is that if this clause is not in, we would have to reconsider the loan entirely,” Alan Buckwalter, managing director of Chemical Bank, told the court.