Icahn Loses Bid to Let Texaco Holders Vote on Rival Plan

Carl C. Icahn on Friday lost his bid to submit a rival bankruptcy reorganization plan to Texaco shareholders in a court ruling viewed by all sides as a watershed in Texaco’s efforts to emerge from bankruptcy proceedings.

U.S. Bankruptcy Judge Howard Schwartzberg, ruling two days after an eight-hour court hearing on the matter in White Plains, N.Y., barred Icahn from filing his own plan before the joint Texaco-Pennzoil settlement and reorganization plan is put to a shareholder vote in March.

Schwartzberg also let stand an agreement between the two warring oil companies that forbids Pennzoil to support any reorganization plan but Texaco’s. Under Texaco’s plan, it would settle its $11-billion fight with Pennzoil for $3 billion and fully pay off its other creditors.

Icahn, who had argued that his plan would give Texaco’s management more incentive to do a better job and that shareholders deserve a choice, said he is “naturally disappointed with the decision” and will re-evaluate his options.

Friday’s decision was an important victory for Texaco, which has contended that shareholders would be confused by two plans and that Icahn’s real mission is to put the company in play and dismember it.

The decision “is an important and significant step toward allowing Texaco to return to competitive leadership,” said the company’s chief executive, James W. Kinnear.

The nation’s third-largest oil company would have been stripped of its anti-takeover devices had Icahn prevailed and won shareholder support for his plan.

Texaco and Pennzoil, however, still face the daunting prospect that their settlement and Texaco’s proposed reorganization will unravel for lack of shareholder support.

They need approval by at least two-thirds of the shares voted on the Texaco proposal. And Icahn, who owns about 15% of the company’s stock, has vowed to vote against the Texaco plan.

But all sides expressed confidence after Schwartzberg’s ruling that Icahn will now discontinue his challenge of the Texaco-Pennzoil plan and either support it or abstain from voting on it. Icahn himself issued a statement promising to re-evaluate his options.

“We intend to study the court’s decision and re-evaluate all the options at our disposal to enhance shareholder value and ensure shareholder rights at Texaco,” Icahn said.

Even before Wednesday’s hearing, sources at Pennzoil and Texaco were predicting that Icahn would eventually support the Texaco-Pennzoil plan that he helped bring to fruition last month. Both companies point out that he could see his $1-billion investment in Texaco tied up for years if this plan fails and Texaco is forced to remain in bankruptcy court.

Dennis O’Dea, the Chicago attorney representing Texaco’s court-appointed equity committee, on Friday urged Icahn to vote for the Texaco plan and “slug out his differences with the company (over anti-takeover measures) at the annual meeting.”

Icahn had tried unsuccessfully to win the support of the equity committee in opposing Texaco’s plan when he discovered it didn’t contain certain shareholder rights measures. The equity committee instead struck an agreement with Texaco hours before Wednesday’s court hearing in exchange for certain bylaw changes and Texaco’s agreement to put some shareholder rights’ measures on the ballot at the next annual meeting.

Schwartzberg’s ruling indicates that Icahn suffered an equally strong setback on Wednesday.

In court that day, two pension funds, both ex officio members of the Texaco equity committee, had a change of heart and threw their support to Texaco. The two funds--the California Public Employees’ Retirement System and the Commonwealth of Pennsylvania Public School Employees’ Retirement System--told Schwartzberg that they had decided to withdraw their support for Icahn’s proposal after the equity committee struck its deal with Texaco.

The change of heart, Schwartzberg said, figured prominently in his decision.