Texaco Inc. won a temporary restraining order today that blocks Pennzoil Co. from collecting a record $10.53 billion judgment and that could pave the way for a settlement between the warring oil companies.
The U.S. District Court in White Plains, N.Y., granted Texaco's request for a temporary restraining order to prevent Pennzoil from seizing any of its assets while the company appeals the judgment in the Texas state court system.
The order enjoins Pennzoil "from taking any action of any kind whatsoever to enforce, or attempt to enforce," the $11.1 billion judgment -- which includes accrued interest -- entered by Texas District Court Judge Solomon Casseb Jr. on Dec. 10.
Casseb upheld a jury's finding that Texaco had illegally enticed Getty Oil Co. to back out of a merger pact with Pennzoil in January 1984. Texaco then acquired Getty for $10.1 billion.
Casseb temporarily waived a requirement, based on Texas law, that Texaco post a $12 billion bond, after the two companies agreed that Texaco could continue operating for up to 90 days without paying the bond, pending a decision on whether it will appeal.
Texaco also agreed not to file for reorganization under Chapter 11 of the U.S. Bankruptcy Code, while Pennzoil agreed not to attach any liens to Texaco property.
Texaco has said that it could not afford to post such a huge bond, and therefore would be denied the right to appeal the Texas verdict. Pennzoil has said it is willing to negotiate a settlement, but Texaco has not responded to the offer.
A hearing on Texaco's petition for a preliminary injunction against Houston-based Pennzoil has been scheduled for Friday in U.S. District Court in White Plains, where the nation's third-largest oil company is based.
"Assuming the restraining order remains in place, it has the potential to relieve Texaco of much of the threat of bankruptcy and the appeal bond," said Alvin Silber, an analyst at Brean Murray Foster Securities Inc.
"There will be a more normal playing field for Texaco and Pennzoil to negotiate a settlement on," he said.
Texaco has said it might be forced to file for bankruptcy to escape posting the bond. The company is valued at less than $9 billion on the New York Stock Exchange, although Pennzoil officials dispute that valuation.
Texaco stock was up $2 to $29.625 a share today on the NYSE, while Pennzoil's stock was down $3.375 to $61.125 a share.
In Houston, Pennzoil said it believes that the temporary restraining order and the suit in U.S. District Court are "without merit and an impediment to settlement discussions."
Texaco signed a $1.7 billion credit agreement with about 30 of its banks today that will give the company access to much needed cash and help allay concerns among suppliers about being paid.
Observers said Pennzoil could move to have the restraining order reversed, but would run the risk of having the controversial judgment opened up to a wider review in the federal court system.
Pennzoil has indicated that it is open to a possible settlement. But insiders said Texaco has been unwilling to initiate any talks to date because the threat of the appeal bond probably would place it at a strategic disadvantage.
Texaco said in a statement that it had no recourse but to file suit against Pennzoil in U.S. District Court because the terms of Casseb's judgment did not "provide sufficient relief to enable the company to conduct its business in an orderly manner," even though he did not require the immediate posting of the bond.
Texaco said Pennzoil executives and lawyers "have uniformly refused to discuss the issue of the appeal procedure and the need for Texaco to be assured that it has this right without undue financial burden."
Texaco said that it delivered a letter to Casseb on Dec. 13 in which the oil company urgently requested a conference with him and Pennzoil representatives to discuss clarification of certain wording and modifications of his order that was designed to protect Texaco from the Texas lien and bond provisions.
"Unfortunately, Pennzoil vigorously objected to holding any conference," Texaco said.
"Unless Pennzoil consents to the federal injunction, it should be clear that Pennzoil fears full appeal of these issues," Texaco said.