Word: texaco
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Under Chapter 11, Texaco's top management will operate much as it usually does. One of the attractions of the relaxed 1978 bankruptcy laws is that day- to-day management of an affected firm remains in the hands of its executives rather than those of a court-appointed trustee. Bankruptcy judges like Texaco's Schwartzberg oversee broader matters, such as the sale and acquisition of major assets, in consultation with committees of creditors...
...bankruptcy may feel downright unpleasant for Texaco's management if Pennzoil has its way on those committees. Rather than fight the bankruptcy frontally, the Houston company has apparently embarked on a more subtle strategy, based on its role as one of Texaco's major creditors. Says Pennzoil Attorney Irvin Terrell: "Texaco has got a lot of other partners now -- banks, trade partners and us. Their affairs will be under the view of the bankruptcy court, and the creditors will have a say. We hope Pennzoil will have the largest...
Pennzoil's bankruptcy counsel, Michael Crames, insists that Texaco will not be able to borrow, offer collateral, sign leases or enter new lines of business without court permission. Says Crames: "Texaco is going to have to live in a goldfish bowl." As a member of Texaco's soon-to-be-formed unsecured-creditor committee, Pennzoil will have access to some of Texaco's sensitive documents and will be in a position to demand many more. Says Chairman Liedtke: "We want to make sure their money is spent wisely. We want to know everything." Texaco executives have said they will refuse...
Unquestionably, the hygienic solution for both sides would be to reach a settlement that will allow Texaco to emerge from its Chapter 11 cocoon. Executives at the oil giant have suggested such a possibility, maybe an indication that Texaco is using its bankruptcy as bargaining leverage against its smaller opponent. Manhattan Attorney Richard Lieb detects a more nuanced strategy in Texaco's Chapter 11 filing. By keeping most of its operating companies out of bankruptcy, he says, Texaco has issued an "open invitation to continued bargaining." Since bankruptcy does not involve the entire company, he argues, "it may be Texaco...
...substantial disincentive to keep the two sides from coming to terms too easily: the possibility of shareholder lawsuits if a prospective settlement is deemed too generous to either side. In conversations with TIME, Pennzoil's Liedtke said fear of just such litigation played a role in his rejection of Texaco settlement offers that he thought were inadequate. Joked Liedtke: "If we took what they offered, I would have sued myself." On the other side, major Texaco shareholders have indicated that they would be unhappy with any settlement payout that exceeded $1 billion...