Texaco to Spin Off Profitable Canadian Unit, 3rd Major Asset to Be Sold

NEW YORK — Texaco Inc. said Tuesday that it has decided to sell its 78% stake in the profitable Texaco Canada Inc. in a move that analysts said goes a step beyond the oil giant’s $5-billion restructuring program.

Texaco’s stake, which is worth about $2.7 billion at its current stock price, could fetch anywhere between $3 billion and $4 billion, analysts estimated, noting that a buyer purchasing the entire block probably would pay at a premium.

Two Canadian oil companies quickly reiterated their interest in acquiring the stake, but a third said it had no plans to pursue a deal aggressively.

The successful spinoff of the Canadian subsidiary, with exploration interests in Western Canada, the Beaufort Sea off Alaska and the Atlantic, would mark the third major sale of operating assets under Texaco’s continuing restructuring program, which was designed to shed marginally profitable operations and boost the value of the company’s stock.

Fresh from victory in a bitter proxy fight with Carl C. Icahn, Texaco already has orchestrated the sale of more than $2.5 billion in assets.

“There have been a number of people who said, ‘If you are determined to do something (with Texaco Canada) we would be interested in making a proposal,’ ” Texaco Chairman Alfred DeCrane Jr. said in an interview.

He would not identify the companies, which he said number more than half a dozen. He also declined to say what the unit was worth, but said Texaco expected to receive a premium over the market price for its interest.

Analysts said they suspected the company would not have made the announcement unless interested parties had at least been identified.

Canadian Occidental Petroleum Ltd., in which Occidental Petroleum Corp. of Los Angeles holds a 48% stake, and Husky Oil Ltd. previously expressed interest in the Texaco Canada stake and both said Tuesday that they still were interested.

Icahn, who was defeated in his quest for five seats on Texaco’s board, said in June that he had discussed a Texaco takeover with both Husky and Gulf Canada Resources Ltd.

Gulf Canada said Tuesday that it was interested in acquisitions but that it was not “aggressively pursuing Texaco Canada at this time.”

Texaco had been studying various options surrounding Texaco Canada, including the possible sale, merger or joint venture of some or all of the stake.

James W. Kinnear, Texaco’s president and chief executive, said that “we have concluded that pursuing negotiations toward sale of our interest best meets” the objective of maximizing Texaco Canada’s value to Texaco and its shareholders.

The company said in a statement that it might be interested in retaining certain Texaco Canada assets, particularly its foreign exploration ventures with Texaco.

Texaco Canada also owns two refineries and two lubricant blending and grease-making plants in Canada. The subsidiary has 1,800 Texaco-brand retail outlets across Canada.

The operation controls 10.4% of the Canadian petroleum products market and 13.5% of the gasoline market.

“The Canadian operations are clean and neat both from the production side and from the marketing and refining side,” said Jack Aydin, a managing director of the investment firm McDonald & Co.

He also said the subsidiary was “respectably” profitable.

Kinnear said in a statement that the possible sale “would represent another major advance” in the company’s restructuring program.

But Aydin said that “it looks like they carried the restructuring plan one step more--to give shareholders a little bit more . . . and possibly to defuse a potential problem down the road.”

He was referring to the fact that while Icahn remains Texaco’s largest shareholder, he could sell his 14.9% stake and management might have to confront another dissident shareholder.

Bruce Lazier, an analyst at Prescott, Ball & Turben Inc., said it might be possible for a buyer to acquire Icahn’s block and then trade it for shares in Texaco Canada.

“Icahn would have to rate right up there in terms of Texaco’s priorities,” he said.

Texaco started putting the restructuring program into place in June, when the company announced that it would sell its West German operations for $1.25 billion to Rheinish-Westfaelisches Elektrizitaetswerk AG. Also that month, Texaco entered into a $1.28-billion deal to sell 50% of its refining and marketing operations in 23 states to Saudi Arabia.

The company has said it plans to distribute to shareholders $1.7 billion of the money that it raises in the restructuring.

The keystone of Texaco’s restructuring plan was a $3-billion payment to Pennzoil Co. to settle a lawsuit resulting from Texaco’s 1984 acquisition of Getty Oil Co. after Pennzoil had made earlier moves to acquire Getty.