PENNZOIL TRIAL: "A jury found Friday that the former directors
of Pennzoil-Quaker State fulfilled their duties to shareholders
in the way they handled the sale of the Houston company to Royal
clears board in sale": Posted Sunday 6 November 2005
Plaintiffs had said company was worth more than $22 per
By TOM FOWLER
A jury found Friday that the former
directors of Pennzoil-Quaker State fulfilled their duties to
shareholders in the way they handled the sale of the Houston
company to Royal Dutch Shell.
The plaintiffs, Pennzoil shareholders before the merger,
contended the company was worth more than the $22 per share
Shell paid, and that the board members failed to do the work
needed to get a better price.
By a vote of 11-1, the jurors found the directors,
including former CEO James Postl and Chairman James Pate,
ensured shareholders had the information needed to make an
They also said the board acted in the best interest of
shareholders, putting shareholder concerns above their own.
"This is a complete vindication of the officers and
directors of Pennzoil," said James Maloney, an attorney with
Baker Botts who represented the defendants. "Mr. Postl did a
fabulous job. He got every penny he could for shareholders."
Thomas Bilek, lead attorney for the plaintiffs, said he
was disappointed with the verdict and plans to appeal.
Jurors declined to talk to the Chronicle after the trial.
In 2002, Shell paid $1.9 billion for Pennzoil, which owned
the No. 1 and No. 2 motor oil brands in the U.S., the largest
chain of quick lubes, and a variety of consumer car care
Over the course of the three-week trial, the plaintiffs
said the directors spent just a few hours over several weeks in
early 2002 discussing the takeover offer, relying mainly on
verbal reports from Postl, an outdated strategic plan and a
report looking at the fairness of the offer from investment
banking firm Morgan Stanley.
That was in stark contrast to the nearly six months Shell
spent researching the company prior to making an offer.
They alleged Morgan Stanley's report omitted information
that showed the value of the company ranging as high as $35 per
share. Shareholders weren't told, according to the plaintiffs,
that Morgan Stanley was motivated to issue a positive opinion on
the deal, no matter what the price, because of how its fee was
structured: the bank would receive $12.5 million if the merger
went through, but only $100,000 if it did not.
They also argued that Postl and Pate were motivated to
sell the company so they could reap hefty bonuses and benefits
that they secured for themselves at the last minute.
During closing arguments, the plaintiffs said they were
seeking damages equal to $7.50 per share, the difference between
the price Shell paid for the company and what they calculated
was its real worth.
The defendants argued that Postl drove a hard bargain with
Shell executives, forcing them to make a bid at the top end of
their range. In their testimony the board members also said the
$22 per share offer was much more than the company could hope to
achieve on its own.