With Talks Broken Off, Icahn Bids $12.4 Billion to Buy the Rest of Texaco

Carl C. Icahn, the corporate raider and chairman of Trans World Airlines, offered $12.4 billion on Wednesday for the shares of Texaco Inc. he doesn’t already own. It would be one of the costliest takeovers in U.S. history.

Icahn, who is Texaco’s biggest single shareholder and has had a running battle with Texaco management, said the offer by “affiliates of his” at $60 per share would expire at 5 p.m. EDT Friday.

Icahn, who owns 14.8% of Texaco’s common shares, said he hasn’t lined up the financing. But he said he was “so confident” of doing so that he would put $100 million into escrow and forfeit it to Texaco if he couldn’t obtain the financing by the time shareholders were ready to vote on it.

Questions Financing

Texaco, which earlier in the day had angrily broken off negotiations with Icahn aimed at settling their differences, belittled the offer as “illusory.” The company said he has several times threatened to make an offer for the company as a bargaining ploy, even though he hasn’t had the financing.

Texaco said the offer “provides absolutely no details regarding financing, disappears in less than 48 hours, and is put forward as an alternative to allow him to avoid the proxy contest with which he has been threatening the company.”

Applied to all of Texaco’s 243 million shares, the takeover is worth $14.5 billion, exceeding Chevron Corp.’s 1984 acquisition of Gulf Corp. for $13.3 billion. Based on the estimated 207 million shares Icahn doesn’t already own, the takeover would cost him $12.4 billion.

The $60-per-share price is about midway between the $55 figure previously mentioned by Icahn as a reasonable share price, and a liquidation value estimated by analysts in the $65-per-share range. Texaco shares closed Friday up $1 at $46.875 on the New York Stock Exchange, before news of the Icahn move. It has traded from $26 to $52 over the past 12 months.

“I don’t know about the details, but $60 is a real price,” said one analyst who asked not to be identified because he had not seen the offer.

Icahn has been sparring with the company’s management since last year. He bought into the company while it was still in bankruptcy as a consequence of a costly courtroom defeat at the hands of Pennzoil.

Proposed Own Slate

Since Texaco’s out-of-court agreement to settle with Pennzoil for $3 billion and subsequent emergence from bankruptcy early this month, Icahn has been demanding new management and a dismantling of the company so that the company’s shareholders would finally receive value for their investment.

He has proposed a slate of himself and four other candidates for election to Texaco’s board at the annual shareholder meeting, currently scheduled for June 7, and has threatened a proxy fight. Texaco recently sued to block any such fight, and accused him of numerous trading irregularities.

But in recent days--reportedly precipitated by an imminent takeover move--the two sides had been locked in apparently friendly negotiations aimed at some form of financial settlement with Icahn and averting a proxy fight. At a minimum, they talked of dropping the lawsuit and the proxy fight.

The tenor changed abruptly on Wednesday, however, when Texaco announced that it was terminating talks with Icahn because he was demanding better financial treatment than other shareholders.

“While the various transactions proposed by Icahn may not technically be greenmail, they would in Texaco’s view benefit Icahn at the expense of the best interest of the company and its shareholders generally,” said James W. Kinnear, president and chief executive.

Specifically, Kinnear said Icahn demanded that he be allowed to dispose of his Texaco stock “in proportions greater than that available to other shareholders and meet concerns he expressed relating to compliance with Section 16(b) of the Securities and Exchange Act and potential tax losses applicable to personal holding companies.”

Kinnear said Icahn also threatened to “fabricate” a means to buy more Texaco stock unless an agreement was reached on ways to allow him to reduce his holdings, “although he did not indicate a source of financing for such purchases.”

Later, Texaco suggested that was exactly what Icahn was doing with his $12.4-billion offer. “Just a few hours ago, he was demanding that Texaco help him unload the shares he already owns. Having failed to push Texaco into accepting his terms, the company believes he is now seeking to use this offer to pressure Texaco to accept his proposals.”

Icahn Fires Back Kinnear said he expected that the break-off of talks would lead to a proxy fight, and said he would postpone the annual meeting to June 17 “in order to provide Texaco shareholders a full opportunity to appraise Icahn and his record.”

Icahn almost immediately labeled Kinnear’s comments “a complete misstatement of facts” and fired off his multibillion-dollar offer in a letter to Texaco’s board of directors.

He asked Texaco to call an immediate shareholders meeting to vote on his offer with the stipulation that his financing would be in place by the time of the meeting.

The letter also said that if his takeover succeeds, “It is our intention as part of our financing plan to sell, among other things, Texaco Canada Inc. and Caltex. However, we intend to maintain Texaco’s core business and return it to its rightful place as a leader in its industry just as we have done with TWA.”

Texaco Canada is frequently mentioned as a possible prospect for sale by Texaco in its ongoing restructuring effort. However, Texaco has all but ruled out the sale of Caltex, its joint refining venture with Chevron Corp.

Willing to Withdraw

The offer also said the owners “of the merger subsidiary may include persons other than my affiliated companies and that Texaco’s board of directors may continue to seek out other prospective merger partners.”

If Texaco executes the merger agreement “and affords our prospective lenders and equity investors due diligence, we will terminate our proxy contest and withdraw our slate of nominees.”

Texaco has embarked on a major restructuring plan aimed at boosting stock prices, including the sale of $5 billion in assets and the possible repurchase of a sizable number of its own shares. However, Icahn said Wednesday that the company is “completely insincere” about the restructuring.

In the talks that ended Wednesday, he said he wanted Texaco to repurchase for $50 up to 40 million shares of its own stock, issue a five-year stock purchase warrant, and declare a special $3 per share dividend. He said Texaco rejected the plan.

ICAHN TAKES AIM

Investments by Carl C. Icahn over the past three years.

1985

Bids $8.1 billion for Phillips Petroleum; takes trading profits of $52.5 million and gets $25 million for expenses after withdrawing.

Successfully seeks control of TWA after rebuffing Texas Air, a rival.

Bids for Uniroyal Inc., which escapes by going private; accepts $5.9 million payment to withdraw.

1986

Bids $8 billion for control of oil and steel giant USX Corp.; withdraws in early 1987 but continues to hold an 11.4% stake.

1987

TWA, controlled by Icahn, offers $1.65 billion for USAir Group; withdraws after USAir buys Piedmont Aviation for $1.6 billion.

1988

Offers an estimated $14.5 billion for Texaco, of which he already owns 14.8%, after he is unable to resolve disputes with management.