An oil company story

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An oil company story

Post by Tdarcos » Sat Feb 25, 2017 1:55 pm

(from a thread in Rudy and the Art of Multiball Maintenance where someone asked for a motor oil story)

i don't have a motor oil story but I have a Motor Oil Company story.

Back in the 1980s Getty Oil, a small petroleum company was in talks with Pennzoil to be bought by them. This would have given Pennzoil, which was strictly a retail provider of motor oils, a foothold in the gasoline delivery business and would have been a good fit for the company.

While this was happening, Texaco discovers Getty is on the market and rushes in with a bigger bid than Pennzoil. Pennzoil's management, to put it lightly, is pissed. They sued Texaco for tortious interference in their business and a bunch of other things.

A jury in Texas awards Pennzoil $10 billion in damages. Now, Texaco could afford this but of course, you don't pay a huge judgement like that, you appeal. The appeals court might likely find the award excessive and reduce it, might find errors in the trial and overturn it, or other things.

Well, to file an appeal Texaco has to post a bond of twice the judgement, or $20 billion. Texaco has good credit, they can qualify for a bond of that size, no problem.

Not exactly. The bond required was too big. No insurance company could write it. No group of insurers could set up a consortium to write it. In short, even if Texaco were to strip the entire worldwide insurance industry of all its underwriting capacity, it could not find enough companies combined to be able to write a bond for $20 billion.

Based on this, Texaco later got permission to post $1 billion of its own stock as surety for the appeals bond.
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