NEW YORK — Moving a step closer toward settlement of the largest civil court case in history, the committee representing Texaco's creditors on Monday gave its blessing to the $3-billion cash settlement proposal fashioned last week by Pennzoil and a committee of Texaco shareholders.
The pivotal decision, which came during a sometimes heated seven-hour meeting of the committees of Texaco creditors and shareholders, sets the stage for a showdown between Texaco management and the groups assigned to steer the company through bankruptcy proceedings.
Yet to be worked out are several details of a plan that would serve as the road map for Texaco's emergence from bankruptcy, a haven Texaco sought in April to forestall enforcement of a $10.3-billion judgment for wrongfully interfering with Pennzoil's planned acquisition of Getty Oil in 1984.
U.S. Bankruptcy Judge Howard Schwartzberg has promised that if Pennzoil and the two committees can agree to a settlement and reorganization plan for Texaco, he will put it to a vote of Texaco's shareholders. If two-thirds or more of the stockholders favor the plan, it will be approved--regardless of any objections from Texaco management.
Supported by Pennzoil
The shareholders and creditors committees continued to meet late Monday night to work out their differences and to try to draft a plan that would also appease Texaco management.
"We believe strongly that the plan should be one that could be supported by Pennzoil, by the two committees and also by Texaco," said Pennzoil spokesman Robert Harper.
Sources at Pennzoil and on both committees said repeatedly Monday that they are still hoping to include Texaco in a final reorganization plan. Texaco joined in some of the negotiations Monday, and sources said there was some progress.
But late Monday, Texaco issued a statement opposing the trilateral accord as too expensive and too restrictive, and reiterating its intent to appeal the court judgment to the U.S. Supreme Court. It also said it has not given up on filing its own plan of reorganization--although its key creditors and shareholders object.
Calling the reorganization plan "excessively burdensome to the Texaco shareholders," the company said the plan "is restrictive and it limits Texaco as to which assets are to be disposed of in financing the plan . . . (and) second, it limits the flexibility of the company to find the best way to fund whatever is the ultimate settlement."
The current reorganization plan does not dictate the assets Texaco would have to sell to raise the settlement money if it could not fund the entire amount from cash it already has. (As of Sept. 30, it reported having $4.3 billion in cash and marketable securities on hand, but analysts say no more than $2 billion would be readily accessible.)
But the focus of much of Monday's discussion was on how Texaco would finance the settlement and whether it should be restricted in its ability to sell assets. The creditors committee argued that a provision should be included in the final plan that would require Texaco to use available cash and to sell its 78% interest in its Canadian subsidiary, Texaco Canada Inc., if more funds are needed.
The creditors argue that if such restrictions are not included in the plan, Texaco could sell assets that would lessen the value of creditors' claims. Texaco counters that such restrictions on the company's business transactions do not belong in the plan.
Also to be worked out are some demands by the shareholders committee. Of greatest concern to the other parties was a demand by some large shareholders that Texaco shareholders be given 12 seats on the company's board. That would represent 45% of Texaco's board and almost certainly would be opposed by Texaco management.
Sources at Pennzoil and on the committees said late Monday that they still hope to have a plan ready for the bankruptcy's court perusal by Friday.
The desire to end this battle quickly, after three years of bitter fighting, has never been greater. Both sides say they feel under extreme pressure to settle and agree on a reorganization plan by March 30.
It is virtually certain that the U.S. Supreme Court will have decided by then whether to hear Texaco's appeal. And the court's decision could drastically alter both sides' negotiating posture.