CEO Won’t Divulge Details of Negotiations : Texaco-Icahn Talks a Try to Ease Sale of Assets
Texaco’s latest talks with shareholder Carl C. Icahn were motivated in part by the fact that uncertainty over Icahn’s intentions have made it harder for Texaco to sell the $5 billion in assets it has on the block, President and Chief Executive James W. Kinnear said Tuesday.
Kinnear refused to divulge details of the negotiations, which the company disclosed Monday night. The two sides said they are seeking to resolve their long dispute without a proxy fight and are apparently discussing a financial settlement with Icahn.
Icahn, Texaco’s largest shareholder with 14.8% of the outstanding shares, has proposed his own slate of five candidates for election to the oil company’s board at the annual meeting, currently scheduled for June 7. He wants a radical restructuring and new management.
Analysts give Icahn little chance of succeeding in a proxy fight to elect those directors, and they speculate that recent Texaco actions to bolster its stock price may have prompted him to enter negotiations with Texaco.
However, an offer by Icahn to buy part or all of the company’s stocks at the $55-a-share price that he has suggested would attract many stockholders, analysts believe. Texaco shares closed Tuesday at $49.375. The Wall Street Journal reported Tuesday that an imminent tender offer by Icahn had brought Texaco to the table several days ago.
In an interview in Los Angeles, Kinnear would not confirm or deny the report or say who initiated the talks. But he insisted that Texaco is less worried about an Icahn tender offer than it is the uncertainty created by the TWA chairman’s jockeying for position.
“What we want to do is have some stability so we can do the kind of things we’re talking about. We’re doing a lot of negotiations, and the other parties want to know who they’re going to do business with,” Kinnear said. “From the point of view of the negotiations, we’d be in a stronger position with a clear understanding of who the management’s going to be.”
He was referring to the company’s restructuring plan, which calls for the sale of $5 billion in assets including major U.S. refineries and oil reserves, its West German subsidiary and other properties.
Texaco and Icahn are rumored to be discussing various special payments to shareholders to mollify the corporate raider, plus the spinoff of shares in Texaco Canada Inc. to present shareholders. The company has said it might repurchase some of its stock, but analysts say it can’t afford to do that until it sells some of its assets. Kinnear said the talks are going on in New York between Icahn himself and Texaco lawyers David Boies and Joseph Flom.
Kinnear said the company is “precious close” to a deal to sell its German unit, Deutsche Texaco AG, to a German utility group for about $1.2 billion. He said the only remaining obstacle is the approval of the West German government.
Optimistic About Saudis
He also said Texaco has received favorable bids for 60 million barrels of scattered U.S. crude reserves and, “We hope we’ll have something to announce very rapidly on that.”
But the biggest transaction, an effort to sell half interests in three refineries on the U.S. Gulf Coast and in Delaware to Saudi Arabia, Venezuela or other buyers, has dragged on for months amid repeated rumors that the talks have been broken off.
While declaring that the Icahn affair has been an obstacle, Kinnear denied that the talks with the Saudis and others have gone in the ditch and said they “seem to be going very well.”
Of recent trade reports that the Saudis themselves were having second thoughts about overseas refinery acquisitions, Kinnear said: “I think they’re serious. It’s going to take awhile, but I’m very optimistic about getting it done.”
Los Angeles was Kinnear’s 15th stop in a series of meetings with shareholders to present management’s case that it is doing everything it can to boost shareholder value in the company. Analysts say Texaco shareholders are a long-suffering group, but Kinnear describes his reception on this trip as “remarkably warm and friendly.”
“There is no indication that the shareholder wants the company sold,” he said, adding that nobody has even brought up the prospect of a tender offer by Icahn.
Texaco took the occasion of Kinnear’s visit to announce a $155-million upgrading of its Los Angeles refinery. Though the company’s 1984 acquisition of Getty Oil Co. led to its costly courtroom defeat at the hands of Pennzoil, it also made Texaco the second-largest crude oil producer in the state after Shell Oil.
He said new sulfur removal equipment at the Los Angeles refinery, combined with previous investments that have slashed oil-lifting costs in Kern County, will make the Los Angeles basin one of its most profitable producing and marketing operations. Sale of any California assets is “highly unlikely,” he said.
