$3-Billion Payoff Is Final Chapter in 4-Year Clash : Texaco, Pennzoil to End Historic Battle Today
For Texaco Inc. today will be a historic turning point when it finally ends its bitter multibillion-dollar legal battle with Pennzoil Co. and begins a fight to maintain its independence.
Texaco will pay Pennzoil $3 billion to end four years of litigation over Texaco’s 1984 acquisition of Getty Oil Co. The settlement is the heart of Texaco’s reorganization plan to take it out of bankruptcy.
While the payment will end a black chapter in Texaco’s history, it will also move it closer to emerging from bankruptcy--a status that could make it prey to hungry corporate raiders. Bankruptcy gives a company sanctuary from hostile takeovers.
“They (Texaco) are going to have to restructure or someone else will do it for them,” said analyst Richard Pzena at Sanford C. Bernstein & Co., echoing sentiments widely held on Wall Street.
Texaco’s stock ended the day at $49 a share, up $1.25.
Texaco’s problems are rooted in a record $10.3-billion judgment against it for illegally interfering with Pennzoil’s agreement to buy a controlling stake in Getty. Texas state courts had upheld the award.
The nation’s third-largest oil company filed for Chapter 11 bankruptcy protection last April because it could not post a bond to appeal the Pennzoil verdict.
Last Minute Appeal
Last month, a federal bankruptcy court approved Texaco’s reorganization plan, which contains the settlement agreement with Pennzoil. While the plan also has provisions to stave off potential raiders, analysts say Texaco’s continued independence is less than certain.
The key period for the company is scheduled to start today--after Texaco makes its payment to Pennzoil, satisfies its creditors and emerges from the protection of the bankruptcy court.
A group of Texaco shareholders tried a last minute attempt to snag the proceedings on Wednesday by asking the U.S. Supreme Court to review the Pennzoil-Texaco settlement. The shareholders said they hoped the request would delay the $3-billion payment.
However, Wednesday evening the nation’s highest court denied the motion--a move that allows Texaco to pay Pennzoil and move out of bankruptcy.
Texaco will now face, without the luxury of bankruptcy court protection, a host of corporate takeover specialists who took an interest in the company while its stock was lagging.
The most visible of the group is Carl C. Icahn, who holds a 14.8% stake in the company and has proposed a slate of five nominees for election to Texaco’s 14-member board. He has also called for the company to be sold.
He has also objected, most recently on Tuesday, to provisions in Texaco’s bankruptcy reorganization plan that grant legal releases to Texaco officials for their conduct in the case.
Potential Threat
Kohlberg Kravis Roberts & Co., best known for its $6.2-billion leveraged buyout of Beatrice Cos. in 1986, also holds a 4.9% stake and is seeking more stock and discussions with the company. It has not outlined any plans.
Finally, famed Oil Patch raider T. Boone Pickens Jr. has filed to build a small stake in the company but has been quiet about his aims.
Analysts say these outside holders represent a potential threat should Texaco prove incapable of presenting a viable restructuring blueprint in addition to a planned $3-billion sale of assets announced in January.
