Rampage of Rumors

Nearly every stock on Wall Street had some ups and downs last week, but Pennzoil's performance gave even some poker-faced investors an acute case of the jitters. After opening at 63 1/4 on Tuesday, shares in the Houston-based oil company took off. By the closing bell the stock had jumped 19 3/4 points, to finish at 83. The next day Pennzoil climbed to 91 by 11:45 a.m. but then tumbled to 73 1/2. The rest of the week proved less tumultuous, and Pennzoil ended Friday at 71 1/2. As late as Nov. 18, Pennzoil was selling for just 49 7/8.

The Roman poet Vergil in The Aeneid called rumor "a huge and terrible monster," and Wall Streeters last week would have agreed. The intense speculation about Pennzoil was part of the high-stakes legal battle the company has been waging with Texaco. In November a Houston jury ordered Texaco to pay Pennzoil $10.53 billion in damages for snatching Getty Oil away in a 1984 takeover battle. After a Houston judge upheld the jury's decision, Pennzoil and Texaco negotiators tried to forge an out-of-court settlement.

Last week, in the midst of those talks, a rumor started that Texaco was offering to buy Pennzoil for $5 billion. If the gossip proved true, the value of each Pennzoil share would instantly have been 105. But instead of creating a gusher of wealth, the rumor turned out to be a dry hole. Pennzoil Chairman J. Hugh Liedtke denied that any merger was imminent, and the stock slumped.

Where the bogus tale originated was unclear. At the New York Stock Exchange, officials tried to pinpoint exactly when Pennzoil's shares started on their unearthly ascent. Said N.Y.S.E. Vice President Richard Torrenzano: "We noticed greater activity both in terms of price and volume by late morning on Tuesday." In Houston, Liedtke first learned of the stock spurt when he received a call in his office atop Pennzoil Place. Said he: "I could only guess that there had been some kind of leak by Texaco about the offer they were going to make." Liedtke later sent a cable to the Securities and Exchange Commission in Washington asking the agency to investigate whether Texaco was responsible for the volatile trading in Pennzoil stock. Texaco Chairman John McKinley called Liedtke's charge "ridiculous," but an SEC probe is pending.

Tracking down leaks and insider trading on the stock market, however, has proved notoriously difficult. RCA stock shot up just prior to an announcement that the company would be merging with General Electric. Macy's shares rose precipitously shortly before plans for a management buyout were disclosed. In neither case has proof emerged of trading by people who were privy to inside information.

Little is known about who bought and sold Pennzoil shares, but the majority of the purchases involved blocks of under 5,000 shares, less than the amount normally swapped by pension funds and other institutions. Most of the trading was thus probably not done by big investors. Shareholders who sold before early Wednesday afternoon stood to make huge profits, but those who held on too long watched their earnings evaporate. Said Bruce Lazier, an analyst at Prescott Ball & Turben: "Somebody did a giant con job on a lot of investors."