Australian's stake in Texaco climbs, and Wall Street wonders what's up
Australian businessman Robert Holmes a Court has bitten off a big chunk of Texaco Inc., the third largest oil company in the US - and everybody wonders what he'll do with it. Two schools of thought dominate among investment analysts. One says Mr. Holmes a Court will continue increasing his stake and ultimately attempt a hostile takeover. This avenue is considered possible, despite the fact that Texaco is operating under Chapter 11 bankruptcy protection from creditors.
``His test pattern has been to try and gain a position'' in the United States, says Frank Knuettel, an oil analyst with Prudential-Bache Securities. ``Whether this is a vehicle is uncertain. What is known, is that he thinks Texaco is a cheap stock.''
Mr. Knuettel and others say Holmes a Court is a smart investor who may simply believe Texaco will win its long running legal battle with Pennzoil Company on appeal to a higher court. A Texas state court in 1985 awarded Pennzoil $10.53 billion, saying Texaco had stolen Getty Oil away from it, just as Penzoil was about to conclude a purchase agreement.
``Any time you have somebody with nearly a billion dollars invested, it's not just hooplah,'' Knuettel says. ``He's there either to restructure the company or make a great deal of money on it after it comes out of bankruptcy. It is just too big a piece of change to be inconsequential.''
According to the those who hold a hostile takeover out as a possibility, the plucky, shrewd Aussie may opt for this route even though there could be legal tangles because Texaco is currently operating under Chapter 11 bankruptcy status. Holmes a Court might risk such problems, it is said, because he aspires to a corporate presence here.
Since May 20, Holmes a Court has invested about $860 million. By early Monday, he had accumulated 9.5 percent of the company's stock - just over 23 million shares. That spells a takeover run to some.
To others, however, Holmes a Court is doing exactly what he claims: making a smart investment. Texaco's stock looks undervalued and Holmes a Court's first major purchases were made in the $30 to $37 dollar range. The rest was purchased ealier this month in the low 40s. Texaco's breakup value is somewhere in the high 50s even with an ``outrageous'' settlement, one analyst says.
With his large stake in the company, Holmes a Court could sit on the investors' committee during bankruptcy hearings and lobby for a settlement with Pennzoil that would send share prices hopping upward. Others think a settlement is the last thing Holmes a Court wants. And there may be some substance to back up that assertion.
Holmes a Court has upped his stake in Texaco considerably since July 2, when the Securities and Exchange Commission told Texaco and Pennzoil attorneys it would file a ``friend-of-the-court'' brief with the Texas Supreme Court. The filing is seen by analysts and others as a way Texaco could get the case heard on its own terms in federal court.
``I think his buying was triggered in part by the SEC action that came to the support of Texaco,'' says Bruce Lazier, a stock analyst with Prescott, Ball & Turben. ``What's promising about the SEC decision, is that this really gives almost certain avenue into the federal court system.''
Other experts also agree the SEC action could improve Texaco's chances. Holmes a Court could be thinking much the same thing.
``Having the federal securities issue in the case improves the chances of Texaco getting into the US Supreme Court very substantially,'' says George Reycraft, a lawyer with Cadwalader, Wickersham & Taft.
``If all the Supreme Court had to look at was [a dispute over state law], that's something they might look at. But to look at a federal securities law issue would be much easier for them to do.''
Clearly, Holmes a Court's avowed statement that he is buying heavily into Texaco ``for investment purposes only'' does carry weight with many people. It does so, partly because of Holmes a Court's track record of living up to what he says he will do.
``He is willing to take risks,'' Knuettel says. ``He's had a long history of going into troubled situations and waiting until they've been cleared up and cleaned up and making a great deal of money.''