Texaco Explains What Led to Truce : Huge Price From Sale of Unit Satisfied Icahn, Chief Says

The unexpectedly fat price fetched by Texaco’s Canadian operations was the catalyst for last weekend’s peace settlement between Texaco and corporate raider Carl C. Icahn, the oil company’s chief executive said Tuesday.

James W. Kinnear said it was the sale of most of Texaco Canada Inc. for nearly $4 billion, when Icahn and others thought it would command perhaps $2.7 billion, that enabled the company to sweeten its special dividend payout and other terms to Icahn’s satisfaction.

It also showed that Texaco’s management knew what it was doing, contrary to Icahn’s repeated assertions during the past year, Kinnear declared in an interview during a Los Angeles visit.

“We did far better than he anticipated and than (Wall Street) anticipated. We did it our way. It turned out our way was right,” Kinnear said.

Texaco Canada, 78% owned by the New York-based oil company, had been on the block since last summer. Its sale to the Canadian unit of Exxon Corp. was finally announced Jan. 20, making it the last and most fruitful in a string of sales of major Texaco assets.

The net proceeds to Texaco of about $7 billion exceeded the company’s original goal by $2 billion, money that facilitated the “standstill” agreement with Icahn announced Sunday.

Polite Exchanges

Icahn, the chairman of TWA and Texaco’s largest shareholder with 16.6% of the outstanding shares, agreed not to buy more Texaco stock or to wage another proxy battle for control of the company. His holdings should bring him more than $300 million in special dividends.

In announcing the agreement, which appears to end a vitriolic feud that had its roots in Texaco’s historic courtroom defeat at the hands of Pennzoil in November, 1985, both Icahn and Texaco have gone to some lengths to make polite or complimentary comments about each other.

Icahn now says that Texaco has done a “good job” in its restructuring effort, while Kinnear allows that Icahn has made “constructive suggestions” to the company. But the Texaco executive implied Tuesday that he was mainly referring to Icahn’s agreement to go away.

In an interview at his suite in the Bel-Air Hotel before a speech to the Town Hall of California forum in downtown Los Angeles, Kinnear asserted that Icahn had virtually no effect on Texaco’s strategies.

“The most constructive suggestion was that he recognized that we needed some stability to be able to run this company, and that was one of the reasons he decided to enter into the standstill agreement. Now that’s constructive,” he said.

Asked if there were other constructive suggestions from Icahn, he said, “I think that’s it.” Asked whether Icahn had been good for the company, he said: “I think I’d answer this way. Everything we have done is what we said we were going to do anyhow. Even all during the turmoil of the lawsuit, we were making our plans to restructure this company.

Others Credit Icahn

“If you want to call it backing off, the reason he backed off is he’s gotten to know us, he’s seen what we’ve done, and he said we’ve done a good job.”

The management view--Kinnear insists that the company’s restructuring actually began in 1981, only to be interrupted by the $11-billion jury verdict and subsequent bankruptcy filing--clashes with those who say it was Icahn’s takeover threat that forced the drastic selloff of assets.

Though Kinnear credited Texaco’s success in getting a premium price for the Canada subsidiary to the company’s intimate knowledge of the operations, it also underscores what analysts say about management’s inherent advantage in such situations.

An Icahn-controlled Texaco would have had a weaker bargaining position with potential buyers, who would know that Icahn needed to sell assets to pay down the debt he incurred in taking over Texaco in the first place, said analyst Bruce Lazier of Prescott Ball & Turben Inc.

By contrast, Kinnear said Tuesday: “We knew what was there. We didn’t allow ourselves to be panicked, we didn’t allow ourselves to be rushed into it. “

After a steep $4-per-share fall on Monday that was attributed to the diminished likelihood of a Texaco takeover, the oil company’s shares recovered by 87.5 cents Tuesday to close at $51.125. It was the most heavily traded company on the New York Stock Exchange.

Separately, Moody’s Investors Service said it might upgrade its ratings of the credit-worthiness of Texaco debt in light of the standstill agreement with Icahn and the completion of the asset sales, some of whose proceeds are earmarked to reduce the debt.