TEXACO <TX> USES BANKRUPTCY COURT TO BUY TIME
Texaco Inc.'s plunge into bankruptcy to
shield it from posting a bond in its 10.53 billion dlr legal
battle with Pennzoil Co. <PZL> is a strategy that will give it
breathing room until the fight over the 1984 acquisition of
Getty Oil Co. winds its way up to the U.S. Supreme Court,
analysts said.
    Texaco, the nation's third-largest oil company, filed for
protection under Chapter 11 of the U.S. bankruptcy code earlier
today, saying it had no choice because of Pennzoil's refusal to
negotiate a reasonable settlement.
    But unlike most Chapter 11 cases, the Texaco proceeding
should not result in a major reorganization of the company or
affect its daily business operations, several experts said.
    "This is another piece of financial history," Sanford
Margoshes, an analyst with Shearson Lehman Brothers, said of
the bankruptcy filing. "What Texaco is doing is buying time to
fight its battle in the courts. They have high hopes they will
be upheld if the case goes all the way to the U.S. Supreme
Court."
    Margoshes said he did not anticipate any significant
changes in Texaco's oil exploration and production business
because the bankruptcy filing affects only about four pct of
the giant oil company's 32.6 billion dlrs in annual revenues.
    Texaco executives said the bankruptcy filing would
effectively halt payments of stock dividends and repayment of
its 6.8 billion dlr debt, but added that the company's assets
far exceeded its liabilities.
    "Texaco's cash flow is at a very respectable rate of about
15 dlrs per share annually," Margoshes said. "Obviously, the
point of Chapter 11 was not so much seeking protection from
creditors as it was seeking protection from the predator
Pennzoil."
    The two companies have been locked in an acrimonious
struggle since a Texas state court jury in November 1985
ordered Texaco to pay Pennzoil 10.53 billion dlrs for
improperly interfering with Pennzoil's planned acquisition of
Getty Oil Co. In a major setback for Texaco last week, the U.S.
Supreme Court said Texaco must abide by Texas state law that
requires posting a bond for the full amount of the judgment
while the merits of the case were appealed.
    Although a Texas appeals court hearing was scheduled Monday
(April 13) on Texaco's motion to reduce the amount of the bond
required under state law, Texaco elected not to risk losing the
important court ruling that could have required it to post more
than 10 billion dlrs in collateral.
    The bankruptcy filing, analysts said, effectively freezes
all of Texaco's obligations while it continues to appeal the
merits of the Pennzoil lawsuit.
    "This is a drastic measure," said Rosario Ilacqua, an
analyst with L.F. Rothschild in New York. "But it's also an
indictment of the legal system in this country in that Texaco
was forced to seek bankruptcy when it couldn't get a fair
hearing."
    Ilacqua predicted that the Texas jury judgment would
ultimately be overturned or whittled down from its original
10.53 billion dlrs, an amount that is increasing by about 2.5
mln dlrs in interest accumulated daily. Texaco has contested
the ruling, insisting that Pennzoil did not have a valid
contract under New York state law to acquire Getty Oil.
    Suggestions by some experts that the Texaco bankruptcy
might be an incentive for Pennzoil to lower its settlement
demands, which are widely believed to be between 3 billion and
5 billion dlrs, were discounted by indignant Pennzoil
executives.
    "I think it makes it much more difficult to settle," said
Baine Kerr, Pennzoil's retired president who has acted as the
company's chief negotiator in the Texaco litigation. "I think
that's one of the main reasons they did it."
    Joseph Jamail, a Houston lawyer for Pennzoil, said the
company had made its latest settlement offer to Texaco on
Saturday and was taken by surprise when Texaco filed for
bankruptcy. He declined to reveal the amount of the proposal,
citing a confidentiality agreement between the two companies.
    "Texaco told us they would get back to us but instead they
chose to go to bankruptcy court," Jamail said. "This was an
irresponsible and unneeded move."
    Ilacqua also said the bankruptcy filing appeared to
eliminate any chance of settlement in the near-term.
    "There have been some crazy numbers floating around in
settlement discussions," Ilacqua said. "I think 1 billion dlr
settlement would be more than adequate for Pennzoil. I don't
know if that Texas jury really understood what money is. They
gave Pennzoil an astronomical judgment."
    Analysts said they expected Texaco stock, which closed
Friday at 31 and 7/8, to slip to about 25 when the New York
Stock Exchange opened Monday morning.
    Lawyers for Pennzoil said they believed the company would
prevail in court appeals, adding that Texaco's assets were
ample enough to ultimately pay the Pennzoil judgment in full.
 Reuter
