Pennzoil Raises Its Stake in Chevron, Denies Takeover : Energy: Pennzoil says it has acquired 8.8% as a long-term investment.

Confirming weeks of rumors, Pennzoil Co. disclosed Thursday that it has raised its stake in Chevron Corp. to 8.8%--using $2.12 billion from its 1988 settlement with Texaco Inc.--but quashed speculation that it would force a restructuring or launch a takeover bid for the energy giant.

In a filing with the Securities and Exchange Commission, Houston-based Pennzoil said instead that the transactions were intended to defer federal taxes on $2.6 billion in proceeds from its settlement with Texaco arising from an aborted bid for Getty Oil Co.

“This position has been acquired as a long-term investment,” wrote Pennzoil Chairman J. Hugh Liedtke in a letter to Pennzoil shareholders Thursday. “Pennzoil has no interest in attempting to take over Chevron.” Pennzoil said it might increase its Chevron stake by another $480 million in the future.

The disclosure dropped the other shoe on rumors about who was buying up millions of Chevron shares, fueling takeover speculation and driving Chevron’s stock to new highs since September in trading volumes three to four times normal.

“I think this takes the takeover hype out of Chevron,” said Thomas Samuelson, an analyst with the investment firm of Duff & Phelps Inc. in Chicago.

Thursday’s news caused Chevron stock to plummet in heavy trading after an hourlong halt, and it closed down $5.25 at $66.75 per share--the ninth-biggest loser on the New York Stock Exchange--on volume of 2.5 million shares, the fifth-most-active issue of the day.

Chevron would make no comment on the filing, other than to say its lawyers and financial advisers were reviewing Pennzoil’s filing.

Pennzoil’s stock closed up 62.5 cents at $83.25 a share on volume of 754,600 shares. Pennzoil has bought 29,696,300 shares of San Francisco-based Chevron in the last 60 days at an average price of $67.52 per share, raising Pennzoil’s total holdings to 31,524,500 shares, the SEC filing said. The stake makes Pennzoil Chevron’s largest single shareholder outside Chevron’s employee benefit plans.

Earlier, the filing said, Pennzoil had considered an investment as high as 18% “for analytical purposes” but now has no plans to buy that much.

“Pennzoil believes that its investment in the (Chevron) shares may provide Pennzoil the opportunity to defer for an indefinite period a portion of the federal income taxes that would otherwise be payable currently on the litigation settlement proceeds which Pennzoil received from Texaco in 1988,” Pennzoil said in its SEC filing.

Pennzoil sued Texaco, arguing that Texaco’s 1984 takeover of Getty Oil interfered with Pennzoil’s plans to buy a piece of Getty. Texaco settled after a Houston jury awarded Pennzoil $10.3 billion.

The company argues that it will not have to pay an estimated $800 million in federal income taxes on the settlement if it puts the proceeds into an investment similar to Getty Oil by the end of next year.

But analysts and tax lawyers questioned Thursday whether the Internal Revenue Service would accept Pennzoil’s interpretation of federal regulations, which has not been tested in the courts.

“Anybody who speaks about this tax strategy with a high degree of certainty probably underestimates the complexity of the situation,” said Paul Ting, an analyst with Oppenheimer & Co., an investment firm in New York. “I’d say Pennzoil has about a 60% chance of winning their case.”

Liedtke saw Pennzoil’s investment as a vote of confidence in Chevron’s management--particularly new Chairman Kenneth T. Derr--and its recent attempts to restructure the ailing energy giant. Although it is the nation’s third-largest oil company, Chevron’s financial performance lags that of its peers, and its stock remains undervalued, analysts said.

Chevron has been taking quiet steps to protect itself from a hostile bidder. On Wednesday, it issued $1 billion worth of new stock, or 14.1 million shares, to a newly created employee stock ownership plan, raising the holdings in employee hands and increasing Chevron’s total outstanding shares to about 356.2 million.

Under the laws of Delaware, where both Chevron and Pennzoil are incorporated, the holder of 15% of a company’s stock may block a takeover.

Pennzoil’s news bolstered the arguments of analysts who had discounted the threat of a hostile takeover of Chevron, which could cost as much as $35 billion.

Pennzoil denied that it has any partners who might help finance a takeover, or that it would seek representation on Chevron’s board.