Pennzoil and dissident shareholder Guy Wyser-Pratte settled their various differences Friday, with the company changing its takeover defense to a "chewable" poison pill.

Board's intransigence
"You can call it the Pennzoil shareholders' victory," Guy Wyser-Pratte said Friday from his Wall Street office. Wyser-Pratte, a well-known shareholder agitator, manages about 726,000 shares of Pennzoil stock (or about 1.5 percent of its outstanding capital) - increased from about 450,000 in the last two weeks. A majority of those shares were bought last year while the company was the target of an $84-per-share hostile takeover bid from Union Pacific Resources Group of Fort Worth. Pennzoil successfully fought back the offer over a six-month period, refusing to negotiate a deal or revoke its poison pill, a strategy, which once triggered, would make a takeover cost prohibitive. The offer was pulled in November.

In response to the board's intransigence during the attempted takeover, Wyser-Pratte launched a proxy fight for a seat on the board and offered several shareholder proposals for the company's upcoming annual meeting. Among those proposals was a requirement that the company could not use its poison pill for more than 90 days without shareholder approval. Pennzoil and Wyser-Pratte sued each other, with Pennzoil alleging Wyser-Pratte had made misleading statements in his proxy materials for shareholder review, and Wyser-Pratte alleging Pennzoil illegally amended its corporate bylaws to make it harder for him to gain a seat on the board. "They knew we were going to win the vote and they would have done anything to bar me from joining their board," Guy Wyser-Pratte said. "They've given us the shareholder bylaw we wanted - to drop the poison pill - and that's all we had been fighting for."

Wyser said he is withdrawing his nomination for election to Pennzoil's board as well as the bylaw amendments and other proposals that he was scheduled to submit at the annual shareholders meeting. All litigation has been dropped as well and Pennzoil has agreed to refund part of Guy Wyser-Pratte's legal costs of nearly $300,000, including a $20,000 fee Pennzoil had charged Wyser Pratte to provide him its shareholders list. As part of the settlement, Pennzoil said it will modify its existing poison pill strategy to incorporate a "chewable" feature. The chewable poison pill will now have an exemption for a fully financed all-cash tender offer for all outstanding shares of Pennzoil common stock that provides a premium to shareholders of at least 35 percent over market price during a 20-day trading period. The Union Pacific Resources' offer of $84 per share in cash was about a 40 percent premium over Pennzoil's closing price the business day before the offer was announced. Paul Korus, analyst with Petrie Parkman & Co. in Denver, declined to comment on the settlement, but said, "That's a new one on me," when told of the chewable pill. Wyser-Pratte said the idea of the "chewable" poison pill is nothing new but an adaptation from what he has learned when venturing in European markets.

The deal was signed
"The principle governing British or French securities laws is that a company cannot block its shareholders from accepting a takeover proposal," Wyser-Pratte said. Still, directors of a target company can count on their shareholders' support if they persuade them to vote against the takeover with consistent arguments. Pennzoil will be granted such an option by the new bylaw." A takeover qualifying for the poison pill exemption will be submitted to a shareholders' vote and will require a majority approval of two thirds,"Wyser-Pratte added. Among other requirements raiders will need to fulfill to get the "chewable" exemption is the extension of their offer to a 60-day period, another feature borrowed from the French takeover regulation, said Wyser-Pratte. This extension period allows other candidates to make competitive offers granting shareholders the maximum from their shares, once the poison pill is removed. Bob Harper, Pennzoil spokesman in Houston, declined to elaborate on the company's written statement on the settlement other than to say the deal was signed Friday afternoon.

Pennzoil's stock closed Friday at $65.56 1/4, up $1.06 1/4, before the settlement was announced. At this price, it only would take an offer of slightly more than $88 per share to make a fully financed all-cash offer to "chew" the poison pill and take over Pennzoil. A Wall Street arbitrageur said Union Pacific Resources could reconsider such an option as it is not much higher than its previous $84 offer. But he speculated that Pennzoil wouldn't have agreed to such a bylaw if it didn't have other plans to avoid being taken over. The most likely move could be to use the proceeds of an asset sale to implement a share buyback program. Also as part of the settlement, a new director will be added to the company's board, returning the total to 11 members after Pennzoil reduced the number to 10 on March 12 when it amended its bylaws.
The new independent director will be added to the board no later than Sept. 30. The new director will be chosen from a list of candidates that will be compiled and screened by a national search firm with input from Pennzoil's institutional shareholders, including Wyser-Pratte. The candidates will have no present or former employment history at Pennzoil or any significant financial or personal ties to Pennzoil or its management.

These objective criteria exclude Wyser-Pratte from the list, but he said they also exclude other larger shareholders such as State Farm Mutual or Fayez Sarofim, who did not support the Union Pacific takeover proposal last year.