Icahn Puts Up $310 Million to Back Texaco Bid : Would Lose Escrow Funds If Financing Falls Through

Carl C. Icahn has carried out his pledge to put up confidence money for his offer to buy Texaco, disclosing Monday that he has placed $310.2 million in cash in a bank escrow account that he would forfeit if he fails to come up with the financing for his $60-a-share offer.

The pledge is intended to persuade shareholders to vote with Icahn in a proxy battle with Texaco management, which is due to be decided at Texaco’s annual meeting on Friday. Icahn and four allies are running for the five open seats on Texaco’s board.

Proxy solicitors on both sides said Monday that the outcome remains in doubt. But securities analysts said the odds are at least slightly in favor of management’s effort to fend off Icahn’s attempt to get himself and four associates named to Texaco’s board.

An Icahn spokesman said the escrow account was opened at Fleet National Bank in Providence, R.I. The money would be forfeited only if Icahn gets Texaco shareholders to agree to his offer but then fails to come up with the $14.2 billion he estimates he will need to acquire the Texaco shares he does not already own. The spokesman said the $310.2 million represents a payout of $1.50 per share to all shareholders other than Icahn if he defaults on his offer.

Icahn, who controls 14.8% of Texaco’s stock, launched the proxy fight after Texaco’s management rejected his friendly merger offer.

Jeers From Texaco

Icahn also said Monday that he has sent Texaco a formal, signed merger proposal to acquire the company at $60 a share and added that he would drop efforts to unseat Texaco board members if the company accepts it.

By late Monday, Texaco had not responded officially to the formal offer. But the company reacted with derision to word that Icahn had carried out his pledge to open the escrow account.

“Given the number of strings and conditions that remain attached to this money, it doesn’t matter to the Texaco shareholder what account Icahn puts it in,” the company said in a statement, adding: “We are still convinced it will never get to Texaco shareholders.”

There were signs Monday that investors’ confidence in Icahn’s offer was ebbing. Texaco stock dropped $1 in heavy trading on the New York Stock Exchange, closing at $50.75. Icahn has disclosed that he has been seeking a partner for the Texaco acquisition, but reports Monday suggested that he may be having difficulty.

Icahn said last week that he was holding talks with Marshall Cohen, chairman of Gulf Canada Ltd., about a possible takeover partnership. But a Gulf spokesman said Monday that the talks had been broken off and are not expected to resume.

Meanwhile, Icahn has continued efforts to persuade shareholders that a vote for his plan could attract even higher offers than his own $60-a-share bid.

An Icahn spokesman confirmed that during a deposition on Monday Icahn said he had spoken with Henry Kravis of the New York investment partnership of Kohlberg Kravis Roberts. The spokesman said Icahn quoted Kravis as saying that his company might be willing to make an offer of more than $60 a share if Texaco puts Icahn’s offer to a vote by shareholders.

A Kravis spokesman Monday would neither confirm nor deny that the company might be willing to make such an offer. Kohlberg Kravis, which owns 4.9% of Texaco’s shares, also has refused to disclose how it will vote in the proxy fight.

Willing to Wait

William H. Brown III, an oil industry analyst at the Kidder, Peabody investment firm, said there is no clear indication of how the proxy battle will end. But he said, “We probably give management a bit of an . . . edge on this.”

He said there appears to be significant loyalty to management among individual shareholders, who collectively own a bit less than half of the company’s shares. And he said some institutional investors seem willing to be patient while Texaco’s management carries out a reorganization following the company’s recent emergence from bankruptcy proceedings.

He noted that even if the price of Texaco’s stock drops after an Icahn defeat, the price would still be well above the low prices at which it traded during the period of uncertainty about the outcome of its recent legal battle with Pennzoil.

The proxy solicitors seeking shareholder votes for each side said the likely outcome probably will not be known until late Thursday night, the eve of the Texaco annual meeting in Tulsa, Okla. Most institutional investors have not yet returned their proxies. Neil Call, an official at D. F. King & Co., which is soliciting proxies for Icahn, said investors generally wait until the last minute to take account of any possible last-minute developments.

“It’s a horse race,” Call said. But he said proxies returned so far indicate that the Icahn forces are getting more than the 10% of the votes from individual shareholders that they had expected to receive.

Richard Nye, an official at Georgeson & Co., one of two firms handling proxy solicitations for Texaco, said he could not predict the outcome. “A lot of votes will not come in until the last moment,” he said. But he asserted that individual shareholders who have returned proxies so far “have been strongly supportive” of management.

Meanwhile, Saudi Arabian Oil Minister Hisham Nazer said Saudi Arabia is “at an advanced stage” in its negotiations to buy a half-interest in three Texaco oil refineries in the United States.

Nazer declined to elaborate, but his comments tended to support recent statements attributed to unnamed sources close to Texaco that the two sides are near agreement on such a deal, which has been valued at between $1.25 billion and $1.75 billion.

The talks have dragged on for months, leading to earlier speculation that the transaction might not succeed. It would account for a significant part of the $5 billion in assets that Texaco hopes to sell as part of its restructuring plan.

Progress on the Saudi negotiations would presumably help Texaco’s cause in Friday’s confrontation with Icahn. But “that doesn’t concern us,” Nazer said. “We want a good deal.” He was interviewed in Vienna during a meeting of the Organization of Petroleum Exporting Countries.

Times staff writer Donald Woutat in Vienna contributed to this story.