NEW YORK, DEC. 11 -- In a significant step toward resolving the most expensive legal battle in U.S. history, Pennzoil Co. and a committee representing Texaco Inc. stockholders have accepted a $3 billion settlement proposal that would end Texaco's bankruptcy reorganization, a Pennzoil spokesman said today.
The agreement, while marking an important move forward in the settlement process, is only the first stage of a proceeding that lawyers involved expect to become drawn-out and contentious.
Texaco said it had been left out of the negotiations between Pennzoil and the shareholders committee. The company also said in a statement that it was surprised by the shareholders committee's decision to change its previous position that the maximum acceptable settlement was $1.7 billion.
While Texaco didn't say whether it would support or oppose the plan, the $3 billion figure is substantially higher than what Texaco has been willing to consider. A settlement could be approved even if Texaco's management opposes the plan, but such opposition would likely bog down the bankruptcy proceedings, lawyers involved said.
Another hurdle yet to be overcome in any settlement is the agreement of Texaco's general creditors committee, which plays a central role in the bankruptcy reorganization. The creditors committee will consider the $3 billion proposal at a meeting Monday, according to the committee's attorney, Joel B. Zweibel. "There's been no formal decision made," Zweibel said.
The $3 billion figure is within the range of possible settlements that the creditors have regarded as acceptable in the past.
Asked if TWA Inc. Chairman Carl C. Icahn, who is a major Texaco and Pennzoil stockholder, had joined the shareholders committee in approving the $3 billion proposal, Pennzoil spokesman Robert Harper said, "I would assume so."
Icahn could not be reached for comment tonight, and his attorney did not return phone calls.
Pennzoil sued Texaco in 1984 over a disputed merger contract involving Getty Oil Co. A Houston jury awarded Pennzoil a record $10.53 billion in 1985. That verdict has been upheld by the Texas Court of Appeals and the Texas Supreme Court.
Texaco, which filed for bankruptcy protection last April because of the case, has said it will appeal the verdict to the U.S. Supreme Court. But there are no guarantees that the high court will hear the appeal, and Texaco is unlikely to learn whether a hearing will be granted before next March at the earliest.
If a $3 billion deal among Pennzoil, the stockholders committee, the creditors committee, and Icahn can be reached by next week, as Pennzoil hopes, then the plan would be filed in federal bankruptcy court as a proposed reorganization for Texaco. That filing would trigger a shareholder vote on the settlement proposal.
Under applicable bankruptcy laws, Texaco's shareholders would need to approve the settlement plan by a two-thirds margin. The vote would take at least six weeks to arrange, bankruptcy experts said, adding that a longer delay was likely because of the size of the controversial case.
Supporters of any settlement, then, would find themselves in a hurry to seek shareholder approval of the plan before the U.S. Supreme Court announces whether it will hear Texaco's appeal. If the high court agrees to hear the case, that would dim chances of settlement approval. Another factor is whether or not the U.S. Solicitor General will announce intervention before the Supreme Court on Texaco's behalf before any shareholder vote.
The stock prices of both Texaco and Pennzoil were boosted by the settlement news. Texaco shares closed at $35.87 1/2, up $3.87 1/2, while Pennzoil's stock rose $6.75 to close at $79.75.