News of the Week
Texaco still operating despite bankruptcy filing When Texaco filed for bankruptcy April 12, it did so primarily to fend off Pennzoil's $10.3 billion claim against the giant oil and chemical concern. But it also filed for protection under Chapter 11 of the U.S. bankruptcy code so it could continue its day-to-day operations with its suppliers and banks. In the week preceding Texaco's bankruptcy filing, the largest in U.S. history, the company's banks were either refusing or threatening to cease financing of daily operations while suppliers were refusing to deliver oil and gas to Texaco operations without cash payment up front, according to documents Texaco filed with the bankruptcy court in White Plains, N.Y. The bankruptcy filing may actually make it easier for Texaco to continue its operations. It is the nation's eighth largest industrial company with 1986 sales of $32.6 billion, which include chemical sales of $1.3 billion. It can now carry on without the threat of a debtor "run" on its assets. As a result of the filing, Pennzoil cannot place a lien on Texaco's assets and must assume the role of an unsecured creditor. Bankers and others with secured claims will come first. Texaco says that only the parent company, Texaco Inc., and two finance units—Texaco Capital and Texaco Capital N.V.—were named in the Chapter 11 petition. As a result, practically all of Texaco's operating units will be able to carry on business as usual. According to Alfred C. DeCrane Jr., Texaco chair-
man, "They will continue to meet all obligations." Texaco's problems with Pennzoil started in early 1984 when Texaco outbid Pennzoil to buy Getty Oil for $10.1 billion. Pennzoil filed suit, charging that Texaco had unlawfully interfered with a binding merger agreement between Pennzoil and Getty Oil. The trial jury subsequently decided in Pennzoil's favor, and ruled that Texaco must pay $10.53 billion in damages, including $3 billion in punitive damages, in November 1985. With adjustments and interest, a Texas court of appeals set the judgment against Texaco at $10.3 billion, including interest, in February this year. Texaco has assets of $34 billion. Industry sources report that James W. Kinnear, Texaco's president and chief executive officer, had offered Pennzoil's chairman and chief executive officer, J. Hugh Liedtke, a settlement believed to be about $2 billion in cash before the bankruptcy filing. Liedtke countered with cash and securities deals ranging from $3 billion to $5 billion. Should the two reach an agreement within 30 days, Texaco may be able to withdraw its bankruptcy filing and continue its business. But Liedtke and Kinnear remain far apart. And it is unlikely that Texaco will withdraw its bankruptcy petition. At the very least, Texaco has bought additional time for its appeal through the Texas courts of the judgment regarding its purchase of Getty Oil. D
Preshipment inspection services criticized The increasing use of preshipment inspection companies by foreign nations is becoming an expensive irritant to many U.S. firms trying to export to those countries, chemical industry witnesses told the International Trade Commission at a hearing in Washington, D.C., last week. The hearing was held at the request of the U.S. Trade Representative, who will later decide whether any regulatory action is needed. Developing nations say they have 6
April 20, 1987 C&EN
turned to these inspection firms because they have been the victims of fraud and corruption by importers and exporters. Inspection companies are hired by these countries to verify that the goods being delivered are of the quality and quantity ordered and are being sold at a fair price. The practice helps prevent unnecessary flow of capital out of the developing countries as well as helping them keep a handle on their debt burdens. About 25 nations now
require all imports to be inspected before shipment. U.S. exporters, however, have had problems in dealing with these companies. Several companies and export associations complained to the ITC commissioners about delays and excess costs resulting from inspection company practices. The effect, according to Armin F. Vaihinger Jr., B. F. Goodrich international sales marketing manager, is adverse to exporters and restrictive of free trade. Three problems were highlighted during the hearing. First, inspections frequently cause delays, holding up delivery of goods and minimizing a company's competitive edge as a supplier. Second, the inspection system increases the exporter's documentation and transaction costs. Stauffer Chemical's Latin American regional sales manager, Christine R. Campel, told the commission that inspections have increased the company's administrative costs of shipments to Latin America more than $150,000 yearly. Third, and most irritating, according to witnesses, is the inspection companies' seemingly "arbitrary" interference with negotiated prices. Virtually all of the dozen or so industry witnesses testified that their shipments have been delayed because the inspection company informed them at the last minute that the price they were asking was higher than an unexplained "prevailing world market price." In defense, the inspection companies, led by SGS Control Services, pointed out that the firms have experienced difficulty establishing operations in the U.S., but insisted that many of the problems already have been solved. Some companies have not complained about the inspections, and developing nations have benefited greatly from this service, SGS contended in a statement. Concern over the inspection companies has led to Congressional action. Rep. Daniel A. Mica (D.-Fla.) has introduced an amendment to the trade bill, H.R. 3, that would require licensing of the inspection firms. The amendment, however, was altered before being approved, and in its present form industry representatives do not believe it will help them. D
