Chevron Sues Pennzoil in Bid to Bar Takeover

Chevron Corp., the nation’s fourth-largest oil company, said today that it is suing Pennzoil Co. and taking other defensive steps after Pennzoil’s disclosure that it has bought 8.8% of Chevron’s stock.

In two other moves designed to deter a possible hostile takeover, Chevron stepped up its shareholder rights takeover defense, which enables stockholders to buy more shares at bargain prices, and lined up a new $5-billion credit agreement with banks.

“Our board believes that Pennzoil’s acquisition of Chevron shares is disruptive and represents a threat to the realization of our long-term business objectives,” Kenneth T. Derr, Chevron chairman and chief executive, said in a news release.

Houston-based Pennzoil disclosed Thursday in a filing with the Securities and Exchange Commission that it paid $2.1 billion to buy 31.5 million Chevron shares--8.8% of the total outstanding--over the past three months.

Pennzoil also said it may spend $500 million more on Chevron shares, the entire $2.6 billion net proceeds it received last year in settling a lawsuit against Texaco Inc. It said that the purchases are for investment purposes and that it has no interest in acquiring Chevron.

But Chevron said today that it has sued Pennzoil in U.S. District Court here, accusing it of violating federal securities laws in failing to disclose important information about its purposes in buying Chevron stock.

The suit seeks to force Pennzoil to sell the Chevron shares, which the San Francisco-based company claims were purchased illegally.

Chevron also said it has amended the “trigger point” for the company’s stockholder rights plan so it would be activated if anyone acquires 10% of outstanding shares, down from 20%. The change is intended to deter anyone from acquiring 10% or more of the company without the approval of Chevron’s board of directors.

Chevron also said that it has set up a new $5-billion credit arrangement with banks in the United States and throughout the world and that all banks involved have agreed not to knowingly finance purchases of Chevron stock by third parties.

In trading at mid-day, Chevron was up 37 1/2 cents a share at $67.12 1/2 while Pennzoil climbed $2.50 a share to $85.75.