Chevron Sues Pennzoil, Acts to Strengthen Takeover Defenses

Chevron Corp., making clear that it doubts Pennzoil Co.’s assurances that its 8.8% stake is merely a passive investment, said Friday that it has bolstered its takeover defenses and sued Pennzoil to force it to sell its Chevron shares, arguing that they were acquired illegally.

Chevron also confirmed that it had persuaded its banks not to lend to third parties seeking to buy Chevron shares and had arranged a $5-billion credit line--just enough for Chevron to launch a retaliatory bid to take over Pennzoil, analysts said.

“It’s sort of a warning shot across the forward bow,” said one analyst, who nevertheless questioned whether Chevron will actually buy Pennzoil.

Chevron also strengthened its stockholder rights plan, lowering the level at which an outsider would need board approval before buying more shares.

Chevron’s actions came in response to Pennzoil’s disclosure Thursday that it had spent $2.12 billion of its settlement with Texaco Inc. in the fight for Getty Oil Co. to buy 31.5 million Chevron shares and that it might spend another $480 million for more shares.

Chevron Chairman Kenneth T. Derr said in an interview Friday, “I don’t have any theories about what their motives might be, but when someone secretly and over a short period of time buys up more than 30 million shares and doesn’t tell you about it, it makes you wonder a little bit.” He called Pennzoil’s recent actions “disruptive” to Chevron’s efforts to improve its financial performance.

In a statement Friday, Pennzoil Chairman J. Hugh Liedtke repeated his company’s contention that its stake is merely a long-term investment and that Pennzoil has no interest in taking over Chevron. He added that the company will respond to the lawsuit in due course.

Chevron sued Pennzoil in U.S. District Court in San Francisco Thursday night to bar the Houston-based company from buying any more Chevron shares until it complies with federal law. Chevron accused Pennzoil of violating securities laws in failing to disclose important information about its reasons for buying Chevron stock.

The giant San Francisco-based energy company also accused Pennzoil of illegally failing to file with the government under the Hart-Scott-Rodino Antitrust Act, which requires companies to disclose investments of more than $15 million in a company unless such investments are absolutely passive.

In amending its stockholders’ rights plan, Chevron lowered to 10% of outstanding shares from 20% the level at which an outsider would need board approval before buying more shares. The company also amended its bylaws to allow only Chevron directors to call a special meeting of stockholders--a move designed to prevent Pennzoil from engaging in a proxy fight to wrest control of Chevron from its current managers.

Derr said he spoke with Liedtke briefly Friday to inform him of Chevron’s actions.

Pennzoil said Thursday that it bought its Chevron stake with cash from its $3-billion settlement with Texaco and said the purchases were designed to defer federal taxes on the settlement.

But few analysts believed that Liedtke, known in oil and investment circles as an aggressive businessman, would sit quietly on the sidelines. Pennzoil’s filing Thursday with the Securities and Exchange Commission said the company would “monitor” Chevron’s financial affairs and “take such future actions . . . as it deems appropriate” to protect its investment.

“I don’t know what all that means, but I have some concerns about whether they’re really just in this on a passive basis,” Derr said Friday.

On Wall Street, rumors spread about Pennzoil’s true intentions in buying the Chevron stake. Analysts and investors speculated that mid-sized Pennzoil was setting itself up to be taken over by Chevron, the world’s sixth-largest energy company, in a so-called Pac-Man defense.

That speculation drove Pennzoil’s stock up $3.25 per share Friday to close at $86.50 per share on trading of 661,600 shares. Chevron’s stock closed up 12.5 cents, to $66.875 in trading of 1.24 million shares, after falling more than $5 on Thursday.

Derr refused to comment on whether Chevron is considering such a defense. Chevron said its $5-billion credit line is intended to give it flexibility and to pursue its strategic business plan.

Other analysts suggested that Pennzoil might force a swap of its Chevron shares for Chevron’s oil and gas assets in the Gulf of Mexico, including those it acquired in the $2.6-billion purchase of Tenneco assets last year.

Older rumors also circulated that Pennzoil might still seek a partner to make a run at Chevron, though many analysts discounted that possibility, given Chevron’s likely $35-billion price tag and the difficulty that takeover aspirants are having these days lining up credit.

“I think Chevron’s probably concerned that someone else might surface with stock . . . or might want to join up with Liedtke,” said Rosario (Sal) Ilacqua, an energy analyst with Nikko Securities Co. in New York. “That’s probably got to be their No. 1 concern right now.”