Pennzoil Rhymes Its Reasons to Dismiss Chevron Suit

Chevron Corp. said Pennzoil Co. had hired a takeover specialist, and Pennzoil replied with a variation of a Christmas Eve poem Friday as the oil giants sparred in federal court over Pennzoil’s purchase of $2.1 billion in Chevron stock.

U.S. District Judge Thelton Henderson heard 90 minutes of arguments, some of them in rhyme, on Pennzoil’s attempt to dismiss Chevron’s lawsuit. The suit accuses Pennzoil of concealing a motive to take over Chevron, or force a restructuring, and seeks to require sale of the stock.

Henderson said he would rule at a later date. He already has ruled that the suit raises serious enough allegations to require Pennzoil to make its documents and executives available to Chevron, and he is to decide by Wednesday whether to prohibit Pennzoil from suing over the same issues anywhere else without court approval.

Houston-based Pennzoil, the nation’s 14th-largest oil company, disclosed two weeks ago that it had bought 8.8% of the stock of Chevron, the fourth-largest oil firm.

Pennzoil said it was making a long-term investment for tax purposes and had no intention of seeking control. But Chevron, in an immediate suit, said Pennzoil had a history of seeking oil property and was violating federal law that requires advance notice and a waiting period before major stock purchases that seek control or a voice in management.

In seeking to dismiss the suit, Pennzoil said Chevron had no evidence for its claims about Pennzoil’s motives and was relying on unfounded speculation. Pennzoil’s lawyer, Stephen Bomse, made the point in verse in his closing statement to Henderson.

“ ‘Twas the day before Christmas and all through the court, Chevron was desperately seeking a tort. But they found no data, no facts they could mention, nothing to prove a deceptive intention. . . . Who cares if all that we have is suspicion? We’ll tell ‘em it’s true, based on our intuition.’ ”

“This discussion,” Bomse said more prosaically, “belongs not in a courtroom but on an analyst’s couch.”

But Chevron’s lawyer, Walter Robinson, said the company had reasons for its suspicions.

For one thing, he said, Pennzoil needs to buy more Chevron stock to get the $800-million tax break it says it is after--enough to put it over the 10% ownership threshold that would trigger Chevron’s “shareholder-rights” plan, one of several anti-takeover measures Chevron has newly instituted. Among other things, Chevron’s suit seeks a declaration that those measures are legal.

Also, according to a declaration filed with the court on Dec. 7, the same day Chevron filed suit, an investment banker working for Chevron said he got a call from Felix Rohatyn, a prominent mergers and acquisitions expert at the investment firm of Lazard Freres, who said he was representing Pennzoil.

“They’re hiring a $6-million man to help them, a man who specializes in mergers,” Robinson said, referring to the amount Rohatyn reportedly made in 1987. “ . . . The threat is real.”

Bomse told reporters that he didn’t know whether Rohatyn was still involved with Pennzoil, but he certainly wasn’t representing Pennzoil during the stock purchases, at the time the suit was filed, or as recently as a few days ago.

Besides, the lawyer asked Henderson, “is there something now sinister, even if it were true, about retaining an investment banker?”

Bomse also said there was no need for Henderson to decide the validity of Chevron’s defensive maneuvers, such as the shareholder-rights plan, because they are already being challenged in five stockholder suits in Delaware, where the two companies are incorporated, and California.

But Robinson said Pennzoil has already criticized Chevron’s measures as an attempt to entrench company management and would inevitably challenge them in court.