Texaco Board Makes Major Moves to Boost Stock Value as Battle With Icahn Nears
The board of Texaco, hoping to drive up the price of its stock before an expected power struggle at the June 7 annual meeting, raised the stakes in its restructuring plan Friday and restored the $3-per-share annual dividend.
Barely a week out of bankruptcy, Texaco said it will sell at least $5 billion in assets compared to the previous goal of $3 billion and suggested it will use some of the proceeds to make a “significant” repurchase of its stock.
The actions at Texaco’s first board meeting since emerging from bankruptcy on April 7 boosted the share price $1.75 per share to $48.625 and placed the company on the most-active list on the New York Stock Exchange, where $175 million worth of its stock changed hands.
The company had been expected to quickly restore the dividend, which it was barred from paying while in Chapter 11 proceedings. Some analysts were mildly surprised that Texaco resumed the full 75-cent quarterly dividend, however.
Its previously announced plan to sell $3 billion in assets, meanwhile, had been criticized by the investment community as inadequate to restore confidence in the company. The pressure of time also figured in Texaco’s actions, said George Friesen, oil analyst at Dean Witter in New York.
Texaco’s failure so far to nail down the sale of parts of three refineries in Texas, Louisiana and Delaware has prompted widespread industry rumors that its extensive negotiations with Saudi Arabia, considered the most likely buyer, have broken off.
Persuasion Needed
While Friesen discounts those rumors, he said investors will demand concrete action before committing to support Texaco management over corporate raider Carl C. Icahn and others who might join forces with him.
“The $3 dividend will buy them some time, but I think they also have to announce one major asset sale before the annual meeting,” said Friesen.
Icahn, who now owns 14.8% of Texaco’s stock, has proposed a slate of five nominees to Texaco’s 14-member board, to be elected at the annual meeting. The combined holdings of Icahn, leveraged-buyout specialists Kohlburg, Kravis, Roberts & Co., and institutional investors exceed 50% of the outstanding Texaco shares.
“Management has got to prove itself and persuade shareholders that, coming out of this Pennzoil fiasco, it will be a viable company,” said Rosario Ilaqua, analyst at Nikko Securities in New York.
Texaco got into trouble when it shouldered aside Pennzoil in acquiring Getty Oil Co. in 1984. Pennzoil subsequently won a $10.3-billion damage award that drove Texaco into bankruptcy before the firms recently settled out of court for $3 billion.
Texaco offered no specifics on what additional assets might be on the block under its broadened restructuring plan. Previously, it has acknowledged active efforts to sell half-interests in the three refineries, its West German subsidiary, and 60 million barrels of scattered U.S. oil reserves. Texaco Canada, 78% owned by Texaco, is another possibility.
Analyst Friesen speculated Friday that the stepped up sales effort raises the possibility of selling Texaco Chemical Co., a minor piece of Texaco but one that could bring a “premium price” in today’s climate of high profits in the chemicals industry.
“The resumption of dividends at a substantial rate demonstrates Texaco’s confidence that this expanded restructuring will enable us to build a more profitable company on a solid core of our most productive assets,” said James W. Kinnear, Texaco’s chief executive and vice chairman.
He said proceeds will go toward reducing debt, funding “high-potential capital projects,” and “supporting other actions under study, such as a significant share buyback, based on market conditions.”
TEXACO ASSETS FOR SALE
Estimated Asset Value Texaco Canada $2 billion Deutsche Texaco $1.5 billion Half interests in three $1.5 billion refineries in Texas, Louisiana and Delaware 60 million barrels of $300 million crude oil in scattered U.S. locations
Los Angeles Times
