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Texaco Rejects Icahn Offer; Proxy Fight Begins

May 27, 1988

NEW YORK (AP) _ Texaco Inc. directors gave thumbs down Friday to a takeover offer from financier Carl C. Icahn, who proceeded with his threat to wage what analysts called an uphill proxy fight for five seats on the oil giant’s board.

Icahn also extended his $60-a-share offer, which values the company at $14.6 billion, from Friday’s deadline until Texaco’s annual shareholders’ meeting June 17. He said he would add a 60-day extension after the meeting if his slate of board nominees wins.

The board had been expected to reject Icahn’s offer. In denouncing it as a ″non-offer″ pressure tactic, Texaco directors echoed management’s sentiment in questioning whether Icahn could arrange financing. They said Icahn’s 48-hour deadline to respond was further evidence he was not serious.

Icahn has been pressuring Texaco’s management in recent months to boost the value of the company’s stock, if necessary by breaking it up and selling off the pieces.

In a statement Friday, Icahn noted that the board did not challenge the price. He said, ″It is a sad day when a board says it’s ‘too late’ to give the owners of a company a chance to vote on a premium proposal to all stockholders.″

Icahn spokesman Neil Call said there were no plans to sweeten the offer, and ″that leaves us with no alternative but to go forward with the proxy contest.″

In a further effort to bolster his credibility, Icahn said details of how he planned to finance the offer would be presented at a security analysts meeting Thursday in New York.

Even before the 14-member board spurned the offer, Icahn was stoking the fires of his fight with the company. Late Thursday he mailed ballots to shareholders urging them to elect his slate of candidates at Texaco’s annual meeting next month.

Call said Icahn, whose 14.8 percent stake makes him Texaco’s largest shareholder, did not want to waste time and decided to mail the material ahead of the long Memorial Day weekend.

″Icahn has to proceed with a good, old mud-slinging contest ... that’s part of the proxy process,″ said Bruce Lazier, an analyst with the investment firm Prescott Ball & Turben Inc.

Texaco and Icahn also expanded their war of words to full-page ads in selected newspapers Friday, with Texaco asking shareholders if they can trust the company’s future to Icahn, and the takeover strategist urging them to take up his offer.

Texaco’s board called on Icahn to abandon his ″costly and disruptive″ proxy contest, noting that ″he does not have to be on the board to make any offers to the company or its shareholders and that the board stood ready to act in the shareholders’ interest.″

Icahn’s side of the battle is expected to be an uphill one.

″He’s hoping for some kind of break that will go his way,″ Lazier said.

Analysts have speculated that Icahn’s offer was intended to flush out other bidders for Texaco. The consensus on Wall Street is that he is looking to boost Texaco’s stock price rather than end up running a huge energy concern.

James Kinnear, Texaco’s president and chief executive officer, has been an outspoken skeptic of Icahn’s ability to finance the offer.

But Icahn said Friday that after selling two prized subsidiaries, the balance could be financed easily with Texaco’s cash flow. Icahn said he would sell Caltex and Texaco Canada for a total of about $5.7 billion and finance the remainder with cash flow that totaled $3.3 billion last year.

But analysts said there are so many restrictions on Texaco’s capital structure that it is unlikely Icahn could make that work.

On Wall Street, investors remained unenthusiastic about the offer for the nation’s third largest oil company. Texaco stock closed down 37.5 cents a share to $49.62 1/2 in composite trading on the New York Stock Exchange.

Although his $60 offer values Texaco’s 243 million common shares at $14.6 billion, Icahn would not have to pay out that much if he decided to pursue such a bid.

He would have to pay $12.4 billion for the 207 million shares he does not already own, and he paid about $1.2 billion for his existing stake of 36 million shares.

The combined total of $13.64 billion would amount to the biggest sum ever paid in a corporate buyout. The previous record was a $13.4 billion acquisition of Gulf Corp. by Standard Oil Co. of California, now Chevron Corp., in 1984.

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