Houston Chronicle: 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 Dutch Shell.Jury clears board in sale": Posted Sunday 6 November 2005

Plaintiffs had said company was worth more than $22 per share

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 informed decision.

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 products.

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hours over several weeks in early 2002 discussing the takeover offer, relying mainly on verbal reports from Postl, an outdated strategic plan and a report looking at the fairness of the offer from investment banking firm Morgan Stanley.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.

tom.fowler@chron.com