Pennzoil Corp. Chairman J. Hugh Liedtke likes to tell the old joke about the master mule skinner who was able to get his stubborn beast moving just by whispering a few words in its ear.
The secret of his powers of persuasion? Before he talks to the mule, he cracks it between the eyes with a 2 by 4 "just to get its attention."
In Liedtke's version, the mule is Texaco Inc., Pennzoil's antagonist in a bitter lawsuit filed after Texaco outbid Pennzoil for control of Getty Oil Co. two years ago.
The 2 by 4 is the $11.1 billion judgment imposed on Texaco last month by a Texas court, following a jury's decision that Texaco had improperly wrested Getty away from Pennzoil.
Liedtke, however, still is trying to get Texaco's attention. In an interview recently, Liedtke acknowledged that the prospects for an out-of-court settlement of the mammoth judgment appear out of sight, at least for the foreseeable future.
"I think the war party is in control and they're going to litigate," Liedtke said.
For nearly a month after Texas Judge Solomon Casseb Jr.'s Dec. 10 ruling upholding the $11.1 billion jury verdict, the two companies made a guarded exploration of a possible settlement, Liedtke said. Those efforts ended in disarray on Jan. 7, when Texaco sent Pennzoil's directors a settlement offer that Liedtke dismissed as an "embarrassment."
Liedtke said he would not disclose the elements of that offer. But he contradicted unattributed published reports that Texaco offered to buy Pennzoil for $90 a share in cash and debt -- or just over $4 billion.
"Certainly the [offered] price was ridiculous . . . It wasn't anything like that. It was a low ball," the Pennzoil chairman said.
For its part, Texaco won't discuss the negotiations. But Texaco Chairman John K. McKinley previously has expressed his company's willingness to come to a "reasonable economic settlement." Meanwhile, Texaco is "pursuing its legal options," a spokesman said.
That pursuit has taken Texaco into the federal courts, where last month it won its most important legal victory in the two-year-long feud.
On Jan. 10, Judge Charles L. Brieant, whose court is in Texaco's home town of White Plains, N.Y., barred Pennzoil from filing claims on Texaco's assets or taking any other action to enforce the $11.1 billion judgment while the case is appealed.
In the process, he dismissed the size of the judgment as "absurd" and "too large by several orders of magnitude." Pennzoil should not have been awarded any more than $800 million in damages, Brieant said, concluding that Texaco was very likely to succeed on appeal in getting a considerable reduction in the $11.1 billion total.
Accordingly, Texaco would not have to post a $13 billion bond -- covering the judgment and advance-interest payments -- while it appeals the jury verdict in Texas courts, Brieant ruled. He said that a $1 million bond would be sufficient.
Pennzoil immediately challenged Brieant's ruling, and the 2nd Circuit U.S. Court of Appeals will hear arguments beginning Feb. 11 in New York City.
Meanwhile, Texaco has been busy in Texas courts as well, seeking unsuccessfully to have Casseb thrown off the case and asking that the damage suit be retried.
Texaco has promised to take its appeals to the U.S. Supreme Court, a lengthy process that will be greatly aided if Brieant's order reducing the bond requirement stands up.
In the interview, Liedtke said he has no doubt that negotiations are off, at least until Texaco learns whether its bid for a new trial in Texas succeeds and whether Brieant's ruling is endorsed by the federal appeals court.
As long as Texaco keeps winning, it has no reason to seek a settlement. And the longer Texaco can stretch out the case, the riskier Pennzoil's position becomes, observers feel.
Most securities analysts, and many attorneys following the case, believe that the $11.1 billion judgment never will be collected.
Certainly, if Texaco can get the case before another jury, it will try to correct a series of tactical courtroom mistakes that seemed to invite the heavy penalty from the jurors in Casseb's courtoom last November.
"If Texaco can get another trial, I'm bloody sure it won't be like the last one," said Alan Edgar, an investment banker with the Dallas firm of Schneider, Bernet and Hickman.
As the trial neared its close last year, Texaco chose not to offer any witnesses or evidence on the issue of how damages should be calculated if the jury found in Pennzoil's favor. A common, if risky strategy, it gave Pennzoil a clear path to offer the jury its own formula for damages.
Pennzoil's attorneys told the jury that Texaco's intervention had prevented Pennzoil from acquiring control over more than 1 billion barrels of Getty reserves for a price of $3.4 billion.
They then argued that it could cost Pennzoil $10.9 billion to find that much oil underground over a 25-year period, based on current exploration costs. The difference between that amount and the $3.4 billion Getty had offered came to $7.5 billion. That became the basis for the jury's award, with punitive damages and interest added on.
Texaco now contends that such a value for the 1 billion barrels that Pennzoil "lost" is wildly exaggerated.
Pennzoil's $10.9 billion number should have been reduced dramatically to take account of inflation over the many years the oil would be produced, Texaco said. By its reckoning, it owed no more than $470 million -- one-fifteenth of the jury's finding.
The foundation for the $10.9 billion calculation by the jury is "completely unfounded," Edgar said. "That logic would come out if Texaco gets a second chance." And a new trial also would permit Texaco to do something about the image of "arrogance" it projected at the trial, Edgar said, an image that made a powerful impression on the original jury.
But Liedtke said Pennzoil is in for the duration, too. In Liedtke's view, the issue isn't money alone.
It is two years since Liedtke celebrated his agreement with Getty Oil directors -- a coup that would have moved Pennzoil into the big leagues with the addition of Getty's reserves. For Liedtke, it would have been the climax to a 31-year career in the oil business that was nearing a conclusion.
Two days later, on Jan. 6, 1984, Pennzoil was out and Texaco was in, with its higher offer for all of Getty's holdings.
The loss still wrankles Liedtke deeply, and he makes it plain he wants satisfaction.
He said Texaco's position is " 'We have done no wrong whatsoever. We have nothing to regret . . . '
"Well, what in the hell am I doing? I'm sitting here with a $12 billion judgment. How can you negotiate?" he asked.
Although Liedtke won't spell out his terms, he seems willing to settle for something well under $11.1 billion -- provided that the settlement recognizes the wrong he claims Pennzoil suffered at Texaco's hands.
The previous attempts to reach a settlement did not have much steam behind them, according to Liedtke.
Pennzoil made two offers prior to the trial, both of which were rejected by Texaco, the Pennzoil chairman said. In effect, Pennzoil had proposed the same terms to Texaco it had made to Getty: Pennzoil would buy the 1 billion barrels of Getty oil and gas for $3.4 billion, Liedtke said.
When Pennzoil made its second offer just before the trial, Texaco replied that it was "comfortable" with its legal position, Liedtke said.
Then, just before Casseb's Dec. 10 ruling upholding the verdict in Pennzoil's favor, Texaco made a hasty, "vague" offer for settlement. "Frankly, I didn't have a chance to look at it," Liedkte said.
Any further offers will have to meet some conditions, he asserted.
Speculation about a settlement has focused on several possible scenarios. In one, Texaco would buy Pennzoil, paying Pennzoil's stockholders a fair price for the shares, plus something for the "injury." In another, Pennzoil would buy oil and gas properties from Texaco, perhaps through a joint venture, thus regaining the reserves it lost two years ago.
But Liedtke said Pennzoil won't sell to Texaco. "We would not want to be in any situation with Texaco that we didn't control . . . I'm not going to make some kind of deal where eight or 10 of us that are kind of key officers at the top of the company get a jillion bucks and everybody else gets fired," he said.
When Texaco acquired Getty, there were widespread firings and layoffs. "Getty had a helluva good company . . . "It's decimated. It's gone, destroyed. It's people's careers," Liedtke said.
Nor, as some analysts suggest, would he be willing to join in the management of Texaco. "I'm too old. I'll be 64 on the 10th of February," Liedtke said. "When I get to be 65, I want to retire as the chief executive officer . . . I want to do some other things in whatever time I'm going to have. Secondly, in his view, "Nobody's going to straighten out that company [Texaco] in any two years. No way."
In theory, a cash settlement could be worked out, because Pennzoil apparently could defer taxes if it reinvested the settlement money in oil and gas properties that were essentially the same in nature as those it had intended to buy in the Getty deal, he said. In that case, taxes would be paid only on the income Pennzoil received from oil and gas production out of the new properties. But the two sides apparently don't share the same view about the outlook for oil prices, and that affects what they think oil reserves are worth, sources said.
"There's no point in talking if they have this attitude that they didn't lose, and they'll fight to the bitter end," Liedtke said. If that's the outcome, he's prepared to walk that course with Texaco, too, the Pennzoil chairman said.