Texaco Sets Rules for Sale of Canadian Subsidiary

NEW YORK —  Texaco Inc. said Thursday it has agreed with its Canadian subsidiary on procedures both will follow to structure the sale of the oil giant’s 78% interest in Texaco Canada Inc.

Texaco acknowledged last month that it intends to sell the unit--a crown jewel that analysts say should fetch more than $3 billion--as part of a mammoth corporate restructuring undertaken when the No. 3 U.S. oil company emerged from yearlong bankruptcy proceedings in April.

Backs Up Promise

The agreement with an independent committee of Texaco Canada’s outside directors expanded on Texaco’s previous assurance that it would not accept a bid for its interest in the prized Canadian unit that was not available to minority shareholders as well.

The announcement said the company committed itself to selling its block on an equal basis unless a prospective purchaser failed to obtain Canadian government approval of a deal “on an acceptable basis” or Texaco were unable to conclude a 100% bid before Sept. 1, 1989.

“This commitment applies regardless of any price ultimately agreed on,” Texaco said in a statement issued from its White Plains, N.Y., headquarters.

The oil company also said it agreed with the Texaco Canada board committee that the companies would “proceed expeditiously” to distribute to shareholders the unit’s interests in 23 million acres of exploration properties in Brazil and West Africa and some producing properties in Canada.

The distribution is expected to take the form of a spinoff of shares in a new, publicly traded company, whose assets will include the exploration and production interests and $65 million in cash, according to the announcement.

‘Equitable Treatment’

James Kinnear, Texaco president, said the structure of the sale “is intended to provide equitable treatment” of Texaco Canada’s minority shareholders.

“We believe that the cooperation evidenced by this accord will facilitate and expedite a successful sale that benefits all parties involved,” Kinnear said. Texaco Canada executives had greeted with dismay the parent company’s original announcement to seek a buyer.

The sale of Texaco Canada would be the most dramatic step so far in the $5.6-billion restructuring program that was central to Texaco’s bankruptcy reorganization plan.

In other announced steps in the program, Texaco has sold its West German subsidiary for $1.2 billion and negotiated a joint venture with Saudi Arabia involving U.S. refining and marketing activities that the company says will yield it $2 billion.

It is also seeking a buyer for 60 million barrels of domestic oil and gas reserves that it values at about $450 million.

Texaco’s stock price closed at $45.875, unchanged in trading on the New York Stock Exchange.

Analysts said the significance of the announcement was its reinforcement of Texaco’s efforts to prove it is grateful for the shareholder support that enabled it to beat back investor Carl Icahn’s proxy fight to replace five Texaco board members.

“Texaco is now in a mode where they’re trying to develop and foster shareholder loyalty,” said Francis Morris, an analyst with Provident National Bank in Philadelphia, adding that Texaco management wants to show that the votes it got in the proxy battle it narrowly won “have not been forgotten.”