Bragging Session With Analysts Set for Today : Texaco Looking to 1990s With Growing Confidence
A year after emerging from bankruptcy court, Texaco Inc. feels good about its corporate self and ready to conquer the 1990s as a lean, mean competitor.
At a meeting before industry analysts today, Texaco officials are expected to extol the virtues of the “new” company that reorganized under protection from creditors, and many analysts say they should.
“The story is an attractive one to see,” said Michael Young, analyst with Smith Barney, Upham & Co.
Since last April, the nation’s third largest oil company behind Exxon Corp. and Mobil Corp. has reduced its debt dramatically, raised $7 billion in cash from asset sales and set a new business course that President James W. Kinnear hopes will make Texaco “one of the industry’s most admired, competitive and profitable companies.”
“There’s no question that (credit) belongs with management, which has been criticized ad infinitum,” Young said. “Actually, they’ve done a remarkably good job when you look at the events that have transpired.”
Frank P. Knuettel, analyst with Prudential-Bache Securities Inc., said last year’s skeptics have become this year’s believers after watching the oil giant exceed its initial asset sale plans.
Dispute With Pennzoil
“Now they’re thinking, ‘maybe this management does have this situation in grasp.’ and I believe it does,” Knuettel said.
In April, 1987, Texaco filed for protection from its creditors under Chapter 11 of the federal bankruptcy laws to avoid having to post a potentially ruinous multibillion-dollar security bond in its fight with Pennzoil Co.
Pennzoil had sued, claiming that Texaco’s 1984 acquisition of Getty Oil Co. interfered with Pennzoil’s prior contract to buy part of reserve-rich Getty. In 1985, a Houston jury awarded Pennzoil a $10.3-billion judgment. Texaco appealed the judgment but eventually settled with Pennzoil for $3 billion amid heavy shareholder pressure to do so.
Carl C. Icahn, Texaco’s largest shareholder, began pressuring the company into boosting its stock value largely through the sale of assets after Texaco’s board rejected his proposal to buy Texaco for $60 a share. Last year, Icahn narrowly lost a proxy fight for control of Texaco’s board.
Even before the bankruptcy, Texaco had begun a major restructuring. But Icahn’s overtures led to Texaco’s selling $7 billion in assets, including its lucrative Canadian subsidiary, Texas Canada Inc., rather than the $5 billion originally planned.
Texaco also agreed to pay two special dividends consisting of cash and preferred stock with a total value of $8 per share, or about $1.95 billion. The company also plans to buy back $500 million in common stock before August, 1990.
Icahn Won’t Buy More
Icahn, who owns a 17% stake, agreed in return not to buy any more Texaco stock for 7 years.
Many analysts say Texaco’s stock price, which has hovered in the $53 range, reflects its full value, but that could change if Icahn decides to sell his share in the company, some say.
Last year, Texaco turned a profit of $1.3 billion, or $5.35 a share, contrasted with a 1987 loss of $4.14 billion, but that could dramatically improve in 1989.
Analysts say Texaco’s shift to exploration and production has come at a favorable time, when crude oil prices are rising.
Last week, Texaco further reduced its refining interests by announcing a joint venture with Sweden’s OK Petroleum AB that included the sale of its 43% interest in a Swedish refinery along with its depots and marketing interests.
Texaco plans to sell about $300 million more in what it considers marginal properties.
Texaco still must make a big oil discovery to further the shift in its focus, said Sal Ilacqua, industry analyst with Nikko Securities Co. International Inc.
Analysts say Texaco is involved in a number of high-risk exploration ventures and is ranging into many little-explored, potentially rich areas.
“They’re doing some very esoteric things in areas where Texaco hasn’t been. I think there’s a new spirit at Texaco,” Ilacqua said.
