The Taking of Getty Oil

by Coll, Steve;

  With Sid Petersen in his office that day were Dave Copley, the company’s white-haired general counsel, and Barton J. Winokur, partner in the Philadelphia law firm of Dechert Price & Rhoads. From that afternoon forward, Bart Winokur would play a role of increasing importance in the affairs of Getty Oil and, eventually, in the fortunes of several other large corporations as well.

  In demeanor and background, Winokur differed from his clients, company men such as Petersen and Copley who had grown up in the West, in middle-class families, and who attended public universities known more for their pragmatism than their panache. For Petersen and Copley, the credentials of success came slowly. They rose at Getty Oil Company not because of some blinding, raw talent or intelligence, but because they were loyal, committed, smart, patient, and stable. Bart Winokur, by contrast, was the sort of man who made an immediate impression, often favorable, always indelible. He looked boyish, with a hint of red in his hair and freckles on his face, and although he was now in his forties he retained the energetic confidence—some said cockiness—of a younger man. He had grown up in Philadelphia, the son of a highly successful lawyer. His Jewish family emphasized education and achievement, and Winokur had met their expectations, attending Cornell University as an undergraduate and then Harvard Law School. He graduated from Harvard in 1964, clerked briefly in the U.S. Court of Appeals, and then joined the large, corporate Dechert firm as an associate.

  In some respects, it was a surprising choice. Dechert was a “white shoe” firm, conservative and Protestant, which served the downtown banks as well as Philadelphia’s old, wealthy Main Line families. The Main Line was an insular, elite society whose families traced their roots to Pennsylvania’s colonial Quakers. Theirs was a world of debutante balls, high manners, and inflexible traditions—the Main Line was the closest thing in America to a European-style aristocracy. The major law firms in Philadelphia were divided into two classes: those, such as Dechert Price & Rhoads, which served the Main Line, and those which served the Jewish business community, specializing not in banking or estate law, but in labor, real estate, and commercial litigation. By the 1980s, this essential distinction between Philadelphia’s elite law firms had begun to blur, but in 1964, when Bart Winokur joined Dechert, the ethnic and class divisions were pronounced. Because of both his talent and his charisma, Winokur never seemed terribly burdened by his status as an outsider to the Main Line. By 1972, he was a full partner specializing in mergers, acquisitions, and corporate finance, and he was respected not only for his impressive, articulate legal work but for his smooth, ingratiating manner with clients—he was known as a clients’ man, and in a large firm such as Dechert Price that was perhaps the most important thing of all. A smart lawyer who did not attract clients might go nowhere in a large firm, but an attorney such as Winokur could rise quickly by cultivating corporate executives in need of Dechert Price’s various legal services. By age forty, Winokur was earning as much money as partners twenty years his senior—a fact Winokur himself was not reluctant to point out—and he was regarded as one of the firm’s most promising young lawyers.

  It surprised no one, then, that Winokur was asked by his partners to cultivate the Getty Oil account for Dechert Price when Lansing Hays and his handful of New York partners merged with the firm in 1979. In Lansing’s view, his merger with Dechert was a way to build a more secure future for his young partners and to broaden the legal services available to his principal client, Getty Oil, although it was also clear that Lansing did not for a moment intend to relinquish his own dominant role at the company. Dechert Price’s motivations in the deal were clear. The firm hoped to preserve Getty Oil as a client after Lansing was gone, and even in 1979 it was clear to most who knew him that Lansing Hays would not live much longer. If Dechert could keep Getty Oil after Lansing’s death, it would mean millions of dollars in annual billings.

  Winokur, the client’s man, was the ideal partner to attempt to forge this transition. Soon after the merger, he and Hays began to work together on Getty Oil legal matters. Unlike some of Hays’ own partners, Winokur was brash enough to stand up to the aging, cantankerous lawyer, and Winokur’s independent manner began quickly to offend Hays. Winokur hardly cared about that; he disliked Lansing thoroughly. His mission was not to curry Lansing’s favor, it was to win over the executives of Getty Oil. And after years of loud, ranting abuse from Hays, Winokur’s smooth and confident manner was a refreshing change indeed—here was a lawyer who actually was nice, even gracious to his clients. While Hays was alive, Winokur tried at every turn to disassociate himself and even his law firm, of which Hays was now a member, from Lansing’s domineering manner. For example, once, at a Getty Oil board meeting in Colorado Springs, Colorado, Winokur returned to his hotel room late at night and found two messages: one from Dave Copley, requesting a meeting at 7:15 the next morning, and one from Hays, asking to meet Winokur at 7:00 A.M. Promptly at seven, Winokur met Hays in the hotel lobby. They shook hands, and Hays said immediately, motioning toward Dave Copley across the way, “Don’t pay any attention to him.”

  A few minutes later, chairman Sid Petersen approached Hays and Winokur and attempted to join their conversation about the upcoming board meeting. “You don’t need to be here,” Hays said abruptly to his client. “We’ll call you when we need you.” Petersen turned angrily and left.

  At breakfast an hour later, Winokur pulled Petersen aside and told him, “I’m humiliated by what Lansing did. I want you to know that this kind of behavior does not represent the views of Dechert Price & Rhoads.”

  By such whispering in his client’s ear, Winokur managed over time to distance himself from Hays. Still, when Lansing died in May 1982, Winokur and his firm were unsure about where Getty Oil would look for outside legal counsel. After all, Dechert Price was headquartered in Philadelphia, while Getty Oil was in Los Angeles. Then, too, the company had never really had a choice before about its outside lawyers—Lansing had been forced upon the company by J. Paul Getty, and the company might now want to shop around. As the summer passed, Dave Copley occasionally called Winokur and asked him to handle some small legal problems for Getty Oil. Still, it was unclear whether Dechert Price would be retained. By fall, when the rumors about Gordon’s trip to Wall Street began to spread, Winokur began to talk directly with Sid Petersen. He flew to Los Angeles and consulted with the chairman and general counsel. Not only was Winokur the sort of lawyer who instilled confidence in his clients, he seemed to have the specific expertise necessary to devise strategy against Gordon that fall. Winokur, understood the ruthless world of corporate takeovers—both its technical, legal aspects and its broader, warlike strategic imperatives. There were those at Getty Oil who were put off by Winokur’s youth and cocky manner. He had an Ivy League swagger, it was said, a powerful arrogance about his credentials and his abilities that did not blend well with the practical, middle-class backgrounds of many Getty Oil executives. Some wondered whether Winokur was loyal to the company the way Lansing had been; after all, for all of Lansing’s capacity to offend and irritate, his loyalty to his client was never in question. Winokur, one top Getty Oil executive put it later, seemed to some a “very flexible human being.” But he did not seem that way to Sid Petersen, who by December had decided that Winokur was to replace Lansing Hays as the company’s chief outside counsel and top legal strategist.

  It was Winokur, then, in late December, who helped devise the idea for the remarkable meeting with Gordon Getty at the Bonaventure Hotel in Los Angeles in early January.

  They had talked about it that afternoon together in Sid Petersen’s office. Petersen had asked Winokur that day to research ways in which the company might challenge Gordon’s authority as sole trustee of the Sarah Getty Trust, in light of his contacts with outsiders such as Corby Robertson. But Petersen also thought that Gordon’s actions were perhaps not entirely his fault. Petersen believed that Gordon simply didn’t understand how the world worked. And he realized that despite several opportunities to do
so, he had failed to forcefully explain to Gordon the dangers of his behavior. Petersen and Winokur agreed that if only they could explain it to Gordon, if only they could make him understand all the implications of his actions, then by sheer force of logic Gordon would be persuaded, he would come around. They had to make Gordon appreciate that he, too, was vulnerable in a takeover attempt. The trust only owned 40 percent of Getty Oil, not, as Gordon himself had pointed out to Petersen months earlier, 51 percent. If a raider acquired the 60 percent not controlled by Gordon, he could “squeeze” the trust by either locking Gordon in as a minority owner or forcing a merger at an unfavorable price. If Gordon would only understand this, if he would see that his best hope was to align with management, that his and management’s interests were really the same here—well, they had to make him understand. And perhaps most important, they had to stop Gordon from disseminating confidential company information to outsiders. Here, at least, Petersen and Winokur had some clout. There was no room for debate on this issue. Ethically, morally, and legally, Gordon was wrong, they thought. Even Gordon’s own lawyers would have to agree about that.

  Gordon himself continued to display a stubborn indifference to management’s concerns; he seemed to project more and more the attitude that Sid Petersen was just a hired hand who had no right to tell a stockholder such as Gordon Getty what to do. Around the first of the year, for example, Gordon called Petersen at Getty Oil headquarters to tell him that Corby Robertson had just offered, if Gordon would cooperate, to buy out all of Getty Oil’s stock for $80 a share, about 50 percent above the current market price.

  “I called Corby and told him that I wasn’t interested in the deal,” Gordon said to Petersen. “Then I brought him up to date on what we had been doing at the company, with the studies—but only in general terms. I sort of rambled around.”

  Petersen was taking notes during the phone call, and he jotted down Gordon’s phrase, “I sort of rambled around.” Beside it, he made a large exclamation mark. It was frightening to think that while discussing Getty Oil’s internal business with a potential hostile raider, Gordon had discussed freely his thoughts and perceptions—Petersen was well acquainted with Gordon’s ramblings and he knew they could lead anywhere. But the exclamation mark also reflected Petersen’s shock that Gordon would admit openly that he “sort of rambled around” while discussing highly sensitive, confidential company studies. It suggested to Petersen the unfathomable depth of Gordon’s naïveté.

  “This was my final rejection to him,” Gordon said. “But Corbin called back in thirty minutes to ask if I would object if they bought the museum’s twelve percent. I immediately told him no, and later my lawyers agreed with that position. I told him, though, that if they went for more than fifty percent of Getty Oil’s stock, I might have to compete. He told me that he wouldn’t do anything that I objected to. He also proposed just making a tender offer, open to all shareholders, for ten percent of Getty Oil’s stock.”

  “If he does that, it will create a decision for you, as to whether or not you should sell some of your stock to the Cullens,” Petersen pointed out. “It will probably result in a lawsuit against you from the beneficiaries, no matter what you decide. Let me ask you, Gordon: have you decided to do something?” Gordon was always using that phrase, “do something.” No one was ever certain what it meant, but here Petersen was referring to the royalty trust studies, and he was asking if Gordon had finally made up his mind to stand behind a single course of action.

  “Yes, I darned near have decided to do something,” Gordon answered. “Darned” was another of Gordon’s favorite words.

  “We have got to tell the board of directors something about what is going on between us,” Petersen said.

  “I agree. I’m ready to tell all. I like to be candid with everyone, including the Cullens.”

  “Well, I would suggest we be somewhat circumspect about what we tell the board,” Petersen said. “But we shouldn’t lie. At the very least, we have to tell them about the Cullen offer.”

  “I agree. I have been candid with everyone. When I talked to Tavoulareas at Mobil a few months ago, I said that even with a premium over the market price, such as the $80 proposed by Corbin, the prices being talked about for Getty Oil stock are too low. Tavoulareas said that was true, but other stocks were too low, too. You can buy at the market price and sell at the asset value price, which is much higher.” This, of course, was the basic economic incentive underlying all the oil industry takeovers.

  “I’d point out, though, that the Cullens are basically borrowing the money for their buy-out of Getty Oil by using the company’s own assets,” Petersen responded. “I think management could do that, too.” In other words, Petersen thought, if the company is going to be taken over because of its undervalued assets, why shouldn’t it be management, rather than an outsider, that profits by the deal? On his notepad, Petersen jotted a note to himself: “Of course, management doesn’t have $500 million” in seed money. Sid Petersen could not match the Cullens’ wealth.

  “If it comes down to it, will you give management the first chance to buy the company?” Petersen asked Gordon.

  “Oh, of course. You can count on it.”

  That was an interesting possibility, but it hardly solved the problems at hand. Despite Gordon’s assurances about a “final rejection,” Petersen knew that an alliance between Gordon and the Cullens was still possible—if the Cullens bid for 60 percent of Getty Oil’s stock, they could force Gordon to join with them because if he refused, the trust might be locked permanently into its 40 percent minority position. Gordon still seemed unable to understand this basic reality, that as a 40 percent stockholder, he was vulnerable to an outside raid.

  In the aftermath of his conversation with Gordon, Petersen wanted to arrange a meeting with Gordon as soon as possible—a private meeting, away from company headquarters, where the Getty Oil chairman could lay out, forcefully and directly, the admonitions, pleas, and warnings that he had failed to make in Phoenix or at the board meeting in Texas the previous July. Now Petersen would lay his cards on the table. That did not mean he would scream or shout at Gordon; such confrontation would only distort the issues. But Petersen would make himself clear, as respectfully as possible. Winokur, too, could play a role; with his expertise in mergers and acquisitions, he could explain to Gordon the dangers of the trust’s position and why it was important that the trust and the company try to build an alliance against outsiders.

  The timing of this meeting was important. Petersen had heard through Lasky and other sources that Gordon was going to meet again with Corby Robertson in late January, and the Getty Oil chairman wanted to intervene before then, to stop Gordon from handing Robertson new studies compiled by Bland and Garber. Petersen had wanted to meet even before the first of the year, but vacation schedules around the holidays made that difficult to accomplish. Later, in fact, there would be some dispute over exactly how and why the Bonaventure Hotel meeting was arranged for the evening of Wednesday, January 12, 1983. Gordon’s attorney, Tim Cohler, would remember that it was he who suggested the meeting, casually, as a chance for Gordon and Sid to discuss anything on the chairman’s mind before the regular January board meeting. Petersen and others would recall it differently; this was not an open-ended meeting, they said, with a vague agenda. It was a confrontation with Gordon Getty, an attempt to end his dalliances with corporate raiders and royalty trust analysts, all those outside encounters that Winokur described facetiously to Getty Oil executives as “Gordon Getty’s Odyssey of Discovery.”

  They gathered in the Bonaventure’s lobby that Wednesday evening after nightfall. The hotel was a cylindrical, splashy, mirrored building in the heart of Los Angeles’s revived downtown center. Petersen, Copley, and Winokur drove over from Getty Oil headquarters, only a mile or two west on Wilshire Boulevard. Tim Cohler, of the Lasky firm, flew down with Gordon from San Francisco and then drove downtown with him from the airport. When he entered the lobby, Cohler sp
otted his old friend Dave Copley, said hello, and then registered for the room. Cohler and Gordon were introduced to Winokur, whom they had never met and about whom they knew little. Then the five of them—Petersen, Copley, Winokur, Gordon, and Cohler—rode the elevator together up to their suite. Inside, there were several couches in the outer room, and a number of comfortably appointed armchairs. The men arranged themselves casually, in something like a circle. A tense mood was beginning to rise among them.

  In Cohler’s mind, the purpose of the meeting was to address whatever concerns Sid Petersen wanted to raise with his client, and he expected the Getty Oil team to take the lead. But Cohler wanted first to establish some ground rules. He sensed that this meeting might later be of interest to outsiders, and he wanted to know whether Copley and Winokur agreed with him that the attorney-client privilege would apply. A discussion among the lawyers ensued. The issue was whether Gordon and Sid Petersen shared a “mutuality of interests,” in which case, they could all five claim attorney-client privilege about the meeting.

  “This is a chief executive officer meeting with a director in advance of a directors meeting, with counsel for the company and counsel for the director present,” Cohler said. “There is no reason to believe that there is anything but mutuality of interest here, and so perhaps we can agree that there is a sound basis for claiming attorney-client privilege if the question should ever arise.”