Texaco Stock Off 8% in Wake of Icahn Deal : Speculators Pull Out as Takeover Specter Fades; Analysts See Only Pluses
The price of Texaco shares tumbled almost 8% Monday, apparently because the speculators who had banked for months on a takeover attempt were suddenly abandoning the shrunken oil giant.
There was general agreement among investment analysts that the hit suffered by Texaco stock, which fell $4.25 a share in heavy trading, was a short-lived reaction to weekend developments which should bode well for the company over the longer term.
The company on Sunday announced a pact with its largest shareholder, Carl C. Icahn, that appears to end his feud with Texaco management and to eliminate him as a prospective suitor for the company.
Icahn has been the final vestige of the turmoil that began in November, 1985, when a Texas jury slapped Texaco with an $11-billion penalty for its tactics in wresting Getty Oil Co. away from the clutches of Pennzoil.
Trading Heavy
By agreeing not to buy any more shares and to vote his stock in line with other shareholders, Icahn deflated the fond hopes of speculators and led to Monday’s steep falloff, analysts said. Texaco shares closed at $50.25 a share on trading of more than 5 million shares, second-largest volume on the New York Stock Exchange.
“With Icahn effectively stepping aside, it obviously reduces the (speculator) potential,” said analyst George Gaspar of Robert W. Baird & Co. in Milwaukee. Gaspar said, “It could take a few days to shake down” the stock speculators.
Calculating the fair value of Texaco’s shares has been a tricky affair for several years as the company operated under the cloud of the $11-billion court judgment, filed for bankruptcy protection, fought a proxy battle with Icahn and finally began selling off billions of dollars in assets.
A pending $8-per-share special dividend to shareholders, which was part of the agreement announced Sunday, and Texaco’s string of asset sales prolong still further a judgment on what Texaco shares are worth, said analyst Rosario Ilacqua of Nikko Securities in New York.
“You’re not going to have a clear reading until they report earnings under this new (corporate) configuration,” said Ilacqua. “The whole question here is what Texaco shares are worth after the special distribution to shareholders.”
The special dividend distribution and a $500-million stock repurchase plan would total $2.4 billion, including some $336 million to Icahn as owner of 16.6% of Texaco’s shares. It is subject to shareholder approval at the company’s annual meeting in May. The two-stage, $8-per-share special dividend would probably be distributed in June and September.
Sold $7 Billion in Assets
Texaco recently agreed to sell its Canadian subsidiary to Exxon Corp. for about $4 billion, bringing to nearly $7 billion the value of holdings it has sold over the past several months.
Disregarding the special dividend, some analysts view Texaco stock to be worth about $45 a share. With the prospect of a takeover battle, the stock had been trading in the $55 range until Monday.
“At $50, Texaco is in a no-man’s land,” said analyst Gaspar. “When it gets to $45 it’s a good buy. In the mid-50s it’s a sell.”
Analyst Joel Fischer, who follows Texaco for Drexel Burnham Lambert, sees it rebounding to $52 or $53 a share, reflecting a basic worth of $42 to $45 plus the special $8 payout. Fischer has been recommending a long-term investment in Texaco “as a going concern.”
“Management is strong, they’re getting rid of dead assets, they have high-quality earnings,” said Fischer. Concurred Ilacqua: “This is going to be a better-run company than it was before.”
