TEXACO (QTX) MAY BENEFIT FROM SEC BRIEF
The Securities and Exchange
Commission's entry into the battle between Texaco Inc and
Pennzoil Co <PZL> could affect the outcome of the 10.3 billion
dlr legal saga, some analysts said.
    Texaco today said the SEC would file a "friend of the
court" brief on the tender offer rule as it pertains to the
case. Some analysts construed this as positive for Texaco since
they said it is alleged by Texaco that Pennzoil violated the
rule, and the issue was not thoroughly addressed in lower Texas
courts.
    Texaco's stock rose 1-1/2 to 39-3/8 and Pennzoil fell four
to 78-7/8. A Pennzoil attorney would not comment. He said the
SEC rule, 10b-13, is part of Texaco's argument in its request
for a Texas Supreme Court case, and that the matter has been
previously addressed in court. Pennzoil said it knew of the SEC
brief but it did not know whether the brief would support the
view of one litigant or be an inquiry and request for
clarification of the reasons for two lower state court
decisions.
    Texaco today said the SEC would urge the Texas Supreme
Court to accept the case for review with respect to the issue.
    Texaco has alleged Pennzoil violated the rule when it had a
tender offer for Getty Oil Co outstanding and then made an
alleged agreement on January 3, 1984, to buy Getty shares.
    Analysts said the SEC tender offer rule prevents those
making the offer from entering into contracts for the target
company's stock. Frederick Leuffer of C.J. Lawrence believes
SEC intervention could be meaningful but acknowledged it could
also have no affect. "If this friend of the court brief is
potent and clearly pro-Texaco, and is taken into account by the
Texas Supreme Court, there is a chance the entire judgment
could be reversed and Pennzoil gets nothing," Leuffer said.
    Texaco and Pennzoil have been locked in a bitter legal
battle over Texaco's acquisition of Getty Oil. A Texas court
awarded Pennzoil a record 10.53 billion dlrs in damages, later
reduced by two billion dlrs. With interest, the award now
totals 10.3 billion dlrs.
    Texaco filed for protection under chapter 11 of the federal
bankruptcy laws earlier this year. Its action was designed to
avoid having a Texas appeals court order it to post a security
bond for the entire amount of the Pennzoil judgement.
    Texaco earlier said the SEC will file its brief the week of
July 20.
    In his comments, Leuffer also reflected the views of other
analysts who believe are not convinced the SEC will play a
significant role. "The other argument is the court will ignore
it (the SEC brief) as it has all the other friend of the court
briefs," he said.
    Kidder Peabody and Co analyst Marc Cohen said he does not
expect the SEC's brief to change the direction of the case.
"Everyday, you're going to see something like this," Cohen
said.
    Texaco lawyer Jim Sales said it was only logical to believe
that the SEC would have sought to intervene in the case if it
believed the 10b-13 rule was involved. "I think what the market
sensed today is that there is a reminder here for Pennzoil that
they may reach for the stars and fall on their face," Sales
said. "They (Pennzoil) have won every case in Texas," said Joel
Fischer of Drexel Burnham Lambert. But Fischer and other
analysts said SEC involvement may raise questions of federal
law that could help Texaco take its case to the U.S. Supreme
Court if the Texas court does not reverse the lower opinions or
refuses to hear its case.
    Analysts said the lower courts did not give much weight to
the 10b-13 issue.
    Sales said the point was argued and the courts
"acknowledged that it was there but they really ignored the
legal affect of what the regulation required, and we hope we
can correct that misimpression".
    Wall Street analysts and arbitragers speculated on many
possible outcomes. One arbitrager said there was concern that
Texaco and Pennzoil could settle for a lower sum than demanded
by Pennzoil.
    "The SEC stepping in on this issue as an amicus curiae
(friend of the court) has a lot of arbitragers a little bit
disturbed," said Cohen.
    "What you're seeing is a continual chess game. Every slight
move down the road could have a multiplying effect," he said.
 Reuter
