Icahn Presses Fight as Texaco Board Votes on ‘Phony’ Bid

The Texaco board of directors was expected today to reject what the company called a “phony” offer by investor Carl C. Icahn to buy the company for $60 a share, and Icahn himself all but ruled out a hostile bid for the giant oil firm.

But the war of words between the two sides accelerated Thursday. Some analysts said the battle could continue indefinitely while Icahn proceeds with a proxy fight and perhaps looks for someone to finance a takeover bid like the $12.4-billion offer he floated Wednesday.

Icahn didn’t even wait for Texaco’s board to act. He announced Thursday that he was launching his proxy fight, soliciting shareholder support for his slate of five nominees to the board at the annual meeting in June.

Wall Street showed skepticism about the offer by bidding up the price of Texaco’s shares just $3.125, to $50, far short of the sum Icahn proposes to pay. It was the second-most heavily traded stock on the New York Stock Exchange.

“The stock didn’t respond because the company said it’s a joke. It’s not a joke,” Icahn said Thursday in an interview.

The proposal by the corporate raider and chairman of Trans World Airlines expires at 5 p.m. EDT today. Texaco said it was convening its board to consider the matter, but speculation already shifted to what Icahn will do after it is rejected.

“There’s no real bid on the table,” said Rosario Ilacqua, who follows Texaco for Nikko Securities in New York. “A lot of people are skeptical. This whole thing was designed to be turned down. The question is what does he do now, pursue the proxy fight or make a real offer?”

As Texaco’s biggest single shareholder with 14.8% of the company’s outstanding shares, Icahn solicited shareholders Thursday to back his candidates, who are committed to the $60 proposal “or any other action in the best interests of all stockholders.”

The bid he made Wednesday is friendly in that he is merely asking Texaco to present it to shareholders, and it is conditioned on his figuring out how to pay for what would be one of the costliest takeovers ever. He apparently does not plan a direct offer to shareholders.

When asked Thursday whether he has ruled out a tender offer, he said: “While I believe that financing a deal of this magnitude would be easy on a friendly basis, financing it on a hostile basis would be rather unlikely.”

Assuming the offer is turned down today, the two sides would be back where they were Wednesday, when Texaco precipitated Icahn’s bid by angrily breaking off negotiations aimed at averting a proxy fight and reaching a financial settlement with Icahn.

However, several analysts said the offer might serve to flush out other potential investors in Texaco, whose stock has performed poorly for years and whose shareholders are known to be restless. A stock speculator said Friday, “I think this is just the opening salvo.”

“This is not an offer,” said analyst Jack Aydin of McDonald & Co. in New York. “He’s trying to put management on the defensive. It’s a good move. The ball is now in management’s court.”

Icahn and James W. Kinnear, Texaco’s president and chief executive, traded charges once again Thursday.

In the interview, Icahn said Texaco had arranged for “a third party,” who he understood to be a Japanese buyer, to buy out his estimated 36 million shares of Texaco for $50 apiece. But he said he rejected it because the offer amounted to “greenmail”--the tactic which Texaco has accused Icahn of using.

Texaco denied arranging such an offer, adding: “If anyone had offered Icahn $50 a share for all his shares, every indication we have is that Icahn would have run through a brick wall to accept it.”

Icahn acquired his huge stake in Texaco for an average price of $34 a share. If he sold them at $50, he would turn a paper profit of $600 million. However, analysts say he doesn’t want to simply sell the shares on the open market because dumping so many Texaco shares at once would depress the price.

Meanwhile, Kinnear said Icahn’s $12.4-billion bid for the 85% of Texaco that he doesn’t already own would actually cost him perhaps $20 billion. That figure includes the company’s estimate of its debts and obligations and various tax burdens that a buyer would assume.

“There is no basis to believe that Mr. Icahn can arrange the financing for a transaction of approximately $20 billion,” said Kinnear.

Icahn has pledged to put up $100 million as good-faith money, forfeitable to Texaco, if he fails to line up financing. Kinnear ridiculed that, saying the Internal Revenue Service wouldn’t consent to it.

Separately, Texaco amended its recent lawsuit against Icahn to charge that his $60-per-share offer is intended to manipulate the market price of Texaco shares and violates securities law by not revealing the true intent of the offer.

It also added detail to the lawsuit which all but identifies Icahn’s partner in an alleged “secret alliance” to acquire Texaco shares as T. Boone Pickens Jr., the chairman of Mesa Petroleum and well-known corporate raider. The suit was amended to say that Icahn persuaded an unnamed investor to request permission to acquire up to 15% of Texaco’s shares.