Two of the Worst Losses in Business History: Texaco and FedEx Corporation (FDX)

Page 1 of 2

On this day in economic and financial history…

The largest civil-damage award in business history was first rendered in 1985 in the case of v. Pennzoil. However, it was far from certain that the $10.53 billion judgment would stand on appeal — until, on Feb. 12, 1987, a Texas court of appeals upheld the original $7.53 billion award for actual damages and reduced punitive damages from $3 billion to $1 billion. Texaco was on the hook for $8.53 billion, an amount far exceeding its cash on hand. The source of Texaco’s problems, as is often the case, began with a business deal that went very, very wrong.

FedEx Corporation (NYSE:FDX)Three years earlier, the chairman of privately held Pennzoil and the son of Getty Oil’s founder had agreed to Pennzoil’s offer of $110 per share for 43% of Getty Oil in a preliminary $5.3 billion merger agreement. Less than a week after reaching this deal, Getty’s board approved a deal with Texaco instead, which had jumped in with a $10.2 billion offer for the entire company. Pennzoil sued Texaco for interfering with what it felt was a legally binding contractual agreement, and the Texas courts twice agreed. The verdict pushed Texaco into bankruptcy two months later, making it then the largest company in U.S. history to seek bankruptcy protection. As Martin Klein of the American Bar Association’s bankruptcy subcommittee said at the time, “Pennzoil is in a better position [after the verdict] than it would have been if the merger had gone through.”

A year later, bold activist investor Carl Icahn of Icahn Enterprises, L.P. (NASDAQ:IEP) brokered an initial $3 billion settlement between the two parties that allowed Texaco to exit bankruptcy. This wasn’t altruistic: Icahn, who had formed his company at the same time the courts decided Texaco’s appeal, owned nearly 15% of the oil company’s stock and made a killing off of its post-bankruptcy rebound. Texaco and Chevron Corporation (NYSE:CVX) merged in 2001, and Texaco learned its lesson the second time around — no one felt slighted enough by that deal to sue.

Step into my FedEx Corporation (NYSE:FDX) Office
On Feb. 12, 2004, FedEx Corporation (NYSE:FDX) made its big move into the retail space by finalizing an acquisition of privately held Kinko’s for $2.4 billion. The shipping giant had big plans to create a network of linked one-stop stores for business printing and shipping, which must have been at least in part a response to rival United Parcel Service, Inc. (NYSE:UPS)‘s ¬†acquisition and rebranding of the similarly positioned Mail Boxes Etc. three years earlier. At the time, Kinko’s had about 1,200 locations to the UPS Store’s roughly 3,000, so FedEx had a little bit of catching up to do.

FedEx initially planned to maintain the Kinko’s name, but after four years of rough going, the company decided to rebrand its retail stores as FedEx Office, which resulted in a one-time write-off of almost $900 million. The growing irrelevance of print services in an era of cheap and nearly ubiquitous printers and copiers, compounded by the difficulties of operating through the Great Recession, forced FedEx to shutter its Office locations in Australia, Mexico, China, Japan, and the United Kingdom. Despite these setbacks, FedEx Office now maintains more than 1,900 interconnected locations — still a far cry from the UPS Store’s 4,700 franchises.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!