Texaco Pay-Out Pact Cools Icahn Takeover Threat : Biggest Shareholder Would Get $336 Million of $1.9-Billion Distribution

Texaco announced Sunday that corporate raider Carl C. Icahn has agreed to stop his threats to take over the energy giant as part of a $1.9-billion pay-out to shareholders that would net Icahn an estimated $336 million.

The agreement ends a long-running feud between the nation’s third-largest oil company and Icahn, the chairman of Trans World Airlines and Texaco’s biggest shareholder. It also appears to end the immediate threat of a takeover at Texaco, according to industry analysts.

The $1.9-billion distribution to stockholders disclosed Sunday is higher than the $1.7 billion the company had promised last June. Icahn had threatened to launch a bid for control of the company unless the pay-out to shareholders was increased.

Under terms disclosed by the company, Texaco will issue two special dividends to its shareholders with a value of $8 per share and a total worth of $1.9 billion. With 16.6% of the company’s stock, or about 42 million shares, Icahn’s portion will be about $336 million.

In exchange, the company said, Icahn entered into a “standstill” agreement in which he pledged not to buy additional shares of Texaco stock and to vote his existing shares along the same lines as other shareholders. A company spokeswoman said the standstill pact will be in effect for seven years.

Stability Seen

Texaco also said it will buy back $500 million worth of its stock by August, 1990, bringing to $2.4 billion the price tag of Sunday’s announcement.

The agreement closes another turbulent chapter for the New York-based oil company, which has endured bankruptcy, a $3-billion lawsuit settlement connected with its takeover of Getty Oil and the sale of nearly $7 billion worth of assets in the last two years.

“The agreement with the Icahn interests should provide a period of stability needed for Texaco shareholders,” James W. Kinnear, president and chief executive of Texaco, said in a statement after the board approved the package Sunday.

Last year, a friendly offer from Icahn to buy Texaco was turned down by management. He then waged and lost a costly proxy battle last June. Since then, Icahn has been increasingly critical of Texaco’s management and had been preparing for another possible proxy fight.

He said in a recent interview that he had not ruled out a new bid for the company. Two weeks ago, he announced that he had increased his stake to 16.6%. But in a statement issued by his Mt. Kisco, N.Y., office on Sunday, Icahn sounded a conciliatory note and acknowledged that he has entered into the standstill agreement.

“I think that top management at Texaco during the last year has done a good job in making Texaco leaner and more productive,” said Icahn, who has made a fortune in recent years by engaging in takeover attempts involving such major companies as Philips Petroleum and American Can.

Eugene L. Nowak, a leading oil industry analyst at the New York investment house of Dean Witter, said the agreement neutralizes Icahn and provides substantial benefit for Texaco shareholders.

“It seems to eliminate the possibility of a takeover, or at least cuts those odds significantly,” said Nowak.

Called Victory for Kinnear

In addition to not buying more Texaco stock, Icahn agreed to give the company a say in how he would dispose of his current holdings, should he decide to do so. That presumably would prohibit him from selling out to another raider.

A Texaco spokeswoman characterized the agreement as a victory for Kinnear, and industry analysts said Icahn must have decided he could not win a bid to elect his slate to the company’s board at its annual meeting in May.

The major institutional investors in Texaco apparently had aligned themselves with management, as they did in helping to defeat Icahn’s proxy bid last year.

Under pressure from Icahn to improve its return to shareholders, Texaco has sold off nearly $7 billion in assets in the last year, including a $3.24-billion cash deal to sell its interest in Texaco Canada to a subsidiary of Exxon Corp. which was announced on Jan. 19.

The cash raised from the sales will be used to pay the special dividends and help pay down the company’s $8-billion debt if the plan is approved by shareholders at the annual meeting in early May.

Improved Prices

If approved, the first special dividend will be $4 per share in three-year notes. The second dividend will consist of $3 in cash per share and $1 in a new preferred stock.

In June, Kinnear had said Texaco would distribute $1.7 billion to shareholders from the proceeds of asset sales. The higher distribution was the result of improved prices for some assets along with pressure from Icahn, according to analysts.

“I’d say in general that, from a shareholder’s viewpoint, this is quite satisfactory,” said Todd L. Bergman, an analyst at the New York investment firm of Goldman, Sachs & Co.