by Coll, Steve;
Petersen thought that Gordon simply didn’t understand the implications of such a conversation: in his innocence, Gordon might give Bass the impression that he would not oppose a takeover run on Getty Oil stock by the Bass family. Then, too, Gordon might inadvertantly disclose confidential, inside company information to Bass. Apart from the potential legal problems associated with such disclosure, it was strategically disastrous for a company such as Getty Oil to share information with an outsider, especially a known takeover specialist. Here was Gordon, sitting all summer in a Getty Oil office examining company documents, and then running off to talk about the company’s operations with an outsider. What was Gordon telling Bass? The possible answers were almost too disquieting for Petersen to contemplate.
Of course, while Petersen had his suspicions, he had no proof that Gordon had done anything wrong. Sid Bass was a patron of the arts and a leading light of the high society that Gordon and Ann Getty now moved in. Perhaps Gordon had just met Bass casually at the opera and had talked innocently in the lobby with him during intermission. Petersen didn’t know, and he had no way to find out. With all the delicacy now surrounding his relationship with Gordon, and taking into account Lasky’s admonitions at their dinner meeting, he was not about to start grilling Gordon for details.
“Gordon, you really should be careful about talking with an outsider like Sid Bass,” Petersen said.
Petersen later regretted the tone of his remark. He should have screamed at Gordon, he said, maybe jumped up and down and stamped on Gordon’s toes. At the time, however, the Getty Oil chairman felt that Gordon understood him sufficiently. “Enough said,” was the tone of Petersen’s response. There was no need to spell it out and risk a confrontation. After all, Petersen thought, if Gordon had said too much to Sid Bass, it wasn’t really his fault. Gordon was naïve. He wouldn’t knowingly do something to hurt Getty Oil—after all, the company’s interests and his own were fundamentally the same, since the trust’s wealth derived from the company’s success. Gordon Getty may be a rich and powerful man, Sid Petersen thought, but he knows not what he does.
Petersen’s view of Gordon was reinforced by the company executives and directors with whom he frequently spoke. After the July board meeting in Texas, at which no action was taken on Gordon’s informal proposals about the sale of ERC and his own appointment to the executive committee, one of Getty Oil’s outside directors, pharmaceuticals executive Henry Wendt, had called Petersen to talk about Gordon. Wendt had flown down to Texas for the board meeting in his own company’s plane, and afterward, he had taken the jet on to San Francisco for the weekend. Wendt had volunteered to give Gordon and Ann a ride home, and he talked with them for several hours along the way.
“This is a classic case of the paranoia of the rich,” Wendt told Petersen when he called to report on the flight two days later. “Gordon is just sure that everyone is out to get him—including Getty Oil management.
“I tried to talk with him about implementing a new bonus and stock-option program for the executives,” Wendt continued. “I told him that the stock-option program was especially important because it makes “management’s interests the same as the shareholders’. But Gordon feels that the problem with big salaries and bonuses for executives is that everyone starts to upgrade his living standards, probably unwisely.”
In other circumstances, they might have laughed about it—Gordon Getty, one of the richest men in the country, jetting home to his Broadway mansion, lecturing that corporate executives had to learn to live within their means. But as Sid Petersen contemplated that airborne conversation, and as he thought about the future of his relationship with Gordon Getty, he could not find the humor in it all.
4
The Innocent on Wall Street
For more than an hour, Sid Petersen and Bob Miller sat together in the Phoenix airport terminal waiting for Gordon Getty to arrive. This time, it was not Gordon’s fault that he was late; Petersen and Miller had gotten the time zones confused, so when they flew Getty Oil’s Falcon corporate jet in from Los Angeles that bright September afternoon, they arrived in Phoenix an hour earlier than planned.
Gordon was flying in by commercial plane from New York, where he and his wife had been staying for the past two weeks. It was not unusual for Gordon to spend time in Manhattan these days. In recent months, Ann had become increasingly involved in New York’s gilded high society—museum and gallery shows, black-tie fund-raisers, exclusive luncheons and dinner parties—and she was even contemplating the purchase of an apartment in the city. Gordon preferred the more relaxed pace of life in California, and he did not relish being away from his basement music room in the Broadway mansion. When they were in New York together, he rarely accompanied Ann out on the town, preferring to spend his evenings in his suite at the Pierre Hotel on Central Park. In Gordon’s absence, Ann traveled the city on the arm of Alexander Papamarkou, a Greek-born stockbroker and social gadfly whose independent brokerage had been built on personal service to the obscenely rich. While Ann fluttered about Manhattan with Alecko, as he was known familiarly, Gordon stayed home to work on music or attend to the business of the Sarah Getty Trust.
As he waited in Phoenix that September afternoon, Sid Petersen had no idea what Gordon had been doing on his most recent sojourn in Manhattan. Much as he might be tempted to do so, it was not the Getty Oil chairman’s prerogative to keep track of Gordon Getty’s every movement. Some days earlier, he had reached Gordon at the Pierre and arranged to meet him at the Phoenix airport so they could ride together to Greyhound Corporation headquarters nearby. Petersen hoped to recruit Greyhound’s chairman and chief executive, John Teets, to join the Getty Oil board of directors. Gordon was now on the board’s nominating committee and he had insisted that he accompany Petersen to any interviews with prospective directors.
Gordon’s plane arrived without incident, and he, Petersen, and Miller walked together through the modern terminal, making small talk. Outside, they hailed a cab. And then, as they rode through Phoenix to the Greyhound offices, Gordon began to talk about his recent adventure in New York.
It was an odd conversation, one typical of the increasingly strained relations between Getty Oil’s chairman and its largest stockholder. Gordon’s tone was casual, conversational, even enthusiastic. Petersen, by contrast, was tense, anxious, and laconic.
“I had a very interesting meeting with Bill Tavoulareas,” Gordon said early on during the cab ride, referring to the iconoclastic president of giant, New York-based Mobil Oil. “He made a number of interesting suggestions about what we should be doing.”
Suggestions? Visited by a 40 percent stockholder of a rich, rival oil company, and asked for his opinions about what that rival company should do in the future, the shrewd, acquisitive Tavoulareas—Tav, as he was known in the industry—had made a few suggestions? Petersen could imagine the dollar signs dancing before the Mobil president’s eyes as he sat with Gordon Getty in his New York office. What a preposterous scene! What had Gordon been doing there? What could he have been thinking?
But Petersen said nothing yet, and as Gordon talked, it became clear that Tav was not the only one the Getty scion had asked for advice during his recent trip to Manhattan. Gordon said that he had also met with some investment bankers on Wall Street and had asked them what strategies Getty Oil should be pursuing to raise the value of its stock. This news was nearly too much for Petersen to bear. It was bad enough that Gordon had talked to Tavoulareas. Still, at least Tav would be smart enough to keep what he learned from Gordon to himself. But investment bankers—some of those people would sell their grandmothers to get a merger or takeover deal underway. That September, 1982, Wall Street’s investment banking houses were at the center of an unprecedented merger mania encouraged by lax antitrust enforcement and the Reagan administration’s free-market policies. The merger fever was washing over industries like an irresistible tidal bore, shifting from sector to sector as Wall Street’s fashions turned. Media companies,
food companies, paper companies, entertainment companies—each industry became “hot,” as the Street put it, as if the destiny of American business was like hem lines or tennis shoes. Now oil companies were hot—indeed, scorching hot. T. Boone Pickens, Jr., was fast on his way to national celebrity by launching hostile takeover raids against the oil giants. And for every deal that took place, no matter which company won or lost, the investment bankers on the Street earned millions in fees. For Gordon Getty, a 40 percent stockholder in one of America’s largest oil companies, to wander through the investment houses soliciting “advice” on how to raise the value of Getty Oil stock—well, he might as well have hung a for-sale sign around his neck. All those bankers think about is deals, Petersen fumed as he listened to Gordon, and now Gordon has stirred their interest in Getty Oil.
But Petersen did not lecture Gordon. Instead, as the cab rolled through Phoenix, he and Bob Miller tried desperately through gestures and whispers to silence him. They pointed quietly to the cab driver. He might be listening, Gordon, they tried to indicate. Who can tell about cab drivers? Maybe this fellow is a business student earning his tuition. Gordon’s discussions with Tav and the New York investment bankers were clearly “insider” information; if the cab driver understood its significance, he might illegally buy or sell Getty Oil stock on the basis of knowledge unavailable to other shareholders. Worse, he might spread rumors about Gordon’s meetings in New York. Whether he did or not, in New York such rumors were no doubt issuing from investment bankers’ lips at this very moment.
Through their gestures and curt comments, Petersen and Miller convinced Gordon that it would be better to postpone their discussion until after they were out of the cab. The meeting with Teets went well, and the Greyhound chairman agreed to join the Getty Oil board. Afterward, Petersen, Miller, and Gordon secluded themselves at the Phoenix airport and concluded their conversation.
Again, as he had done before the board meeting in July, Petersen admonished Gordon that it was unwise to discuss Getty Oil business with outsiders, but again, the Getty Oil chairman adopted a moderate tone. He was firm, but he did not scream or rant or dwell on the point. Petersen was tense. He understood all too well that he was walking a tightrope with Gordon. If he said anything to anger him, Gordon might respond by allying himself with some raider or financier and making an immediate bid to takeover the company. That was the last thing Petersen wanted—his career, his position, his salary, and his future were on the line. At the same time, he had to find some way to make it clear to Gordon that these meetings with outsiders could not continue.
Petersen still believed, as he had in July, that Gordon simply didn’t appreciate the consequences of his actions. How could he? The sophisticated, ruthless world of investment banking and corporate takeovers was alien to Gordon; there was something almost touching about the naïveté that would lead him to wander the halls of the Street’s major investment houses seeking advice about the future of his company. When he explained his New York meetings to Petersen, Gordon said that he was simply asking a variety of Getty Oil stockholders—owners, such as himself—what they thought about how the company was being run. Petersen later decided that Gordon had visited the investment houses because, when he looked at the list of Getty Oil shareholders, he didn’t understand that many stockholders list their ownership through their brokerage house—thus, Gordon had erroneously concluded that the houses themselves owned Getty Oil stock. There was a ceratin innocent logic about that mistake. To Petersen, Gordon was like an ancient Christian asking the hungry lions what sort of food they’d like for supper.
In their discussion at the airport, though, Gordon indicated that he had in fact learned a few things about the oil industry while back in New York. “I’ve heard some very interesting things about royalty trusts,” Gordon said. “I really think we should investigate them and see if they make sense for Getty Oil.”
Royalty trusts were all the rage in the oil business that September. Advocated most prominently by Boone Pickens, they were a complex, tax-oriented restructuring device designed to raise the value of a company’s stock. Obviously, somebody had been giving Gordon Getty an education.
“Yes, we’ve heard about royalty trusts,” Petersen said. “In fact, we recently developed an internal study about them and whether they’d be right for the company. I’ll show you that memo when we get back to Los Angeles.”
Gordon was satisfied. Throughout the afternoon, even during the cab ride, his air of genuine excitement over the discoveries he had made in New York never waned. He simply wanted to share his information with Sid Petersen. There was no fear in Gordon Getty’s eyes, as there was in Petersen’s. There was only eagerness, enthusiasm.
Gordon Getty said later that throughout this period he at all times understood and accepted the implications and consequences of his actions. That claim did not always seem credible. But whether accidentally or not, Gordon’s trip to New York and his conversation with Petersen in Phoenix did serve to further the two goals he had articulated repeatedly since the death of Lansing Hays the previous May: to control Getty Oil’s policies through the ownership of 40 percent of its stock, and to raise the value of the trust’s holdings.
It was this latter goal that led Gordon Getty to an interest in royalty trusts in the fall of 1982. The price of Getty Oil stock, and thus the value of the Sarah Getty Trust, was languishing. That fall, the company’s stock was selling for between $50 and $60 a share. When Gordon visited with industry analysts on Wall Street, however, they told him that the value of Getty Oil’s underlying assets—what the company’s oil and gas reserves, land, refineries, and mines would be worth if they were sold on the open market—was more than $100 a share, and perhaps even as much as $200 a share, or four times the current stock price. John S. Herold Inc., one of the best-known oil industry consulting firms, estimated that a share of Getty Oil stock was actually worth $182.45, not $50 or $60 dollars. Another analyst in Houston, whose own company held a large number of Getty Oil shares, had said recently that Getty Oil’s “politically secure” oil and gas reserves alone had a “present value of $15.6 billion, or $190 per share.” Everyone Gordon Getty talked to that fall said the same thing: Getty Oil’s shares were vastly undervalued by the stock market. As the analysts put it, the company was worth more dead than alive. The stock price had drifted so badly, it was calculated, that if you adjusted for inflation, the stock market value of Getty Oil had actually declined in the six years since J. Paul Getty’s death, and this during a period when the oil industry experienced a huge windfall because of OPEC and rising world oil prices.
Yet while everyone agreed that Getty Oil was the victim of a so-called “value gap” between the price of its stock and the worth of its assets—on this issue, the numbers spoke compellingly for themselves—there was little agreement about the causes of this gap or about its implications. For one thing, Getty Oil was not alone in its predicament; nearly every large oil company in America was undervalued by the stock market in the fall of 1982. Indeed, the value gap was at the center of a raging debate within the oil industry and on Wall Street.
The gap was the essential economic impetus for all the corporate takeovers then in fashion: if a raider could acquire control of a company’s stock at a price far below the company’s actual value, then he could profit immensely by later selling off its assets. There were many in the oil industry, including nearly all the managers of companies threatened by raids, who regarded such takeovers as the unscrupulous and irresponsible exploitation of a stock market quirk. In 1982, OPEC, faced with declining oil consumption in the West and buffeted by internal dissension, lowered its formal per-barrel prices. Investors responded to the price drop by selling off oil stocks, causing the price of those stocks to decline markedly.
Many oilmen regarded this fall in stock prices as simply a temporary market aberration inevitable in a cyclical industry whose profits depended on the whims of an international cartel. Besides, these industry executives
said, current stock price was not the only way to measure the long-term value of a company. A company’s stock price might be depressed for a variety of reasons, some quite desirable: management might be investing money in long-term programs, it might be “writing off” past mistakes in order to clean its slate for the future, or it might simply be in the trough of a short-term business cycle—and the oil industry was indisputably cyclical. Besides, these takeover critics said, a large oil company should not simply be defined by the numbers on its balance sheet. Any company has constituencies beyond its stock owners: its employees, its community, its suppliers, and even its consumers, who benefit from the competition a company provides. Raiders in the oil industry and elsewhere were just despicable, opportunistic “liquidators,” the critics said. They used cheap stock prices to acquire companies and then destroyed them by selling off their valuable assets, leaving tens of thousands unemployed and whole towns wasted in their wake.
Convincing as such arguments might be, to men such as Sid Petersen, men who after all had their salaries and careers and life-styles at risk in any takeover attempt, there was another side of the debate, a side especially striking to Gordon Getty that September. Why, after all, was Getty Oil’s stock price so low—not just a little bit depressed, but two or three or even four times less than the company’s actual value? Who was responsible? Boone Pickens and his allies on Wall Street said unequivocally that it was Sid Petersen’s fault.