NEW YORK, DEC. 15 -- The $3.01 billion bankruptcy settlement plan designed to end the bitter legal dispute between Pennzoil Co. and Texaco Inc. hit a major snag today when Texaco shareholder Carl C. Icahn said he would oppose the plan without changes.
Icahn, the TWA Inc. chairman who has used his stake in Texaco to play a significant role in settlement talks, said in a letter to the chairman of a committee representing Texaco's shareholders in bankruptcy proceedings that the committee should drop its demands for seats on Texaco's board of directors.
Icahn called the committee's insistence that it be granted 12 seats on a reconstituted 26-member Texaco board "ruinous ... unwarranted and counterproductive." Icahn said in his letter to Robert Norris, head of the shareholders committee, that unless the demand was dropped, he would oppose the proposed settlement.
A settlement ending Texaco's bankruptcy reorganization would require the approval of two-thirds of the firm's shareholders. Icahn holds about a 12 percent stake in Texaco.
Until Icahn announced his opposition, the $3.01 billion settlement -- which has been endorsed by Pennzoil, the shareholders committee and by Texaco's creditors -- was expected to be filed with the bankruptcy court later this week.
Icahn's opposition, which was endorsed in a statement by Pennzoil, seemed designed to defuse resistance to the settlement proposal from Texaco's management, which on Monday objected to the plan. Texaco found the settlement's provisions concerning changes on its board of directors particularly onerous, in part because it feared a takeover attempt by Icahn.
But Icahn wrote in his letter that he is not interested in a takeover attempt but in a rapid settlement of the lawsuit with Pennzoil. A settlement likely would raise the value of Icahn's Texaco shares, which he bought after the October market collapse from embattled Australian financier Robert Holmes a Court.
Pennzoil sued Texaco in 1984 over a disputed merger contract involving Getty Oil Co. A Houston jury awarded a record $10.53 billion verdict to Pennzoil in 1985. Most of that award has been affirmed by the Texas appellate courts. The judgment now stands at $10.3 billion.
Texaco plans to appeal the case to the U.S. Supreme Court unless a settlement is reached. If Icahn's move today has its desired effect it may make it possible for Texaco's management to join in a settlement soon. But if the gambit fails and the shareholder committee refuses to compromise, hopes for a quick bankruptcy settlement could fade.
Texaco had no immediate comment on Icahn's letter.