NEW YORK, DEC. 14 -- A committee of Texaco Inc.'s creditors has joined a shareholder group and rival Pennzoil Co. in endorsing a $3 billion settlement plan that would allow Texaco to emerge from bankruptcy proceedings.
Texaco, however, said tonight that it opposes the plan, setting the stage for a contentious campaign that will likely climax early next year in a vote by Texaco's shareholders. Two-thirds approval by the shareholders is required before any bankruptcy settlement becomes final.
The agreement today of Texaco's general creditors committee marks another important step forward for Pennzoil, which is attempting to use an alliance with creditors and shareholders to force a $3 billion settlement on Texaco's management.
If approved by two-thirds of Texaco's shareholders and a federal judge, the settlement would end the nearly four-year-old legal dispute between Pennzoil and Texaco over a 1984 merger contract with Getty Oil Co. Texaco, however, seemingly hopes to persuade shareholders to approve an alternative settlement that would allow the company to continue its legal appeals to the U.S. Supreme Court.
Today's developments seem likely to force Texaco into a time-pressured campaign to win endorsements for its Supreme Court appeal while urging shareholders to reject the Pennzoil-sponsored settlement proposal. The high court is unlikely to decide whether to grant Texaco a hearing on its case before the crucial shareholder vote, but it is possible that U.S. government agencies could intervene in the appeal before the vote.
Pennzoil won an unprecedented $10.53 billion verdict from a Houston jury in 1985 and has seen the award upheld by the Texas state appellate courts. Texaco sought federal bankruptcy protection earlier this year because of the case. A number of attempts to settle the dispute between Texaco and Pennzoil in the past have failed. But when the Texas Supreme Court upheld the huge verdict without a hearing six weeks ago, Pennzoil began successfully to press for an agreement with creditors and shareholders in bankruptcy court.
TWA Inc. Chairman Carl C. Icahn, who owns more than 10 percent of Texaco's outstanding shares and a smaller stake in Pennzoil, has played a significant role in this latest round of settlement talks. The threat of an Icahn-led Texaco takeover was one reason Texaco refused to endorse the $3 billion settlement plan the creditors committee approved today, sources said.
That plan would call on Texaco to sell its 78 percent interest in Texaco Canada Inc. and to use some of its $4.3 billion in cash reserves to pay for the Pennzoil settlement and related bankruptcy reorganization costs, according to people familiar with it.