NEW YORK, JAN. 5 -- Trans World Airlines Inc. Chairman Carl Icahn today threatened to disrupt the proposed bankruptcy settlement plan designed to end the $10.3 billion legal dispute between Pennzoil Co. and Texaco Inc.
Icahn, who owns about 12 percent of Texaco's stock, said in a letter to Texaco Chief Executive James Kinnear that he is "deeply troubled" by the bankruptcy reorganization plan backed by Pennzoil and Texaco because it did not go far enough to reward shareholders.
As part of the proposed settlement, Texaco would pay Pennzoil $3 billion to settle their mammoth legal dispute over a 1984 merger contract. The settlement must be approved by two-thirds of Texaco's shareholders, who will likely vote on the plan by spring. If the plan is approved, Texaco will emerge from bankruptcy reorganization.
The TWA chairman's threatening letter has the potential to unleash a conflict that would scuttle the entire settlement deal. Icahn's demands will almost certainly be opposed by Texaco's management and directors. That opposition will likely force Pennzoil and committees representing Texaco's creditors and shareholders to mediate with Icahn.
Icahn today asked the bankruptcy court to permit shareholders to choose between the proposed settlement plan backed by Pennzoil and Texaco and one sponsored by him. Icahn said his plan would be identical to the one backed by Texaco, except that it would strip away antitakeover and other protections for Texaco's management.
In a statement, Texaco described Icahn's bankruptcy filing as "an improper and unnecessary interference." The company said that Icahn "is clearly seeking to put himself in a position to reap substantial short-term profits, possibly on the backs of other stockholders who might receive less than full value for their shares."
Icahn indicated that the $3 billion payment at the heart of the Pennzoil settlement did not concern him, but said he is upset about Texaco's willingness to grant legal indemnities to other parties in the dispute. The TWA chairman also said he wanted Texaco to rescind its "poison pill" takeover defense and to grant shareholders other rights to remove Texaco's directors.
Icahn gave mixed signals in his letter about the existing settlement plan, which he helped to negotiate. He said early in his letter that he was "fully behind" the settlement but wrote at another point, "We cannot accept a plan of reorganization that leaves management unaccountable to shareholders."
Texaco sought bankruptcy protection last April because of financial pressures caused by Pennzoil's huge legal judgment. The $10.3 billion verdict was awarded by a Houston jury in 1985 and then affirmed by two Texas appellate courts. Texaco's appeal to the U.S. Supreme Court is pending, but effectively has been suspended until shareholders vote on the settlement proposal.
In his letter, Icahn said that Texaco's management was "holding a gun to shareholders' heads by demanding they either choose a plan that perpetuates the entrenchment of management; or face the possibility of a ruinous $11 billion judgment...
"By offering us this 'take it or risk ruination plan,' it appears you have tired of 'playing chicken' with Pennzoil and now want to 'play chicken' with your own shareholders," Icahn wrote. "It is dangerous to ride with someone who 'plays chicken' because inevitably there will be a collision."