by Coll, Steve;
Then, too, there was a sense of desperate frustration. It was difficult to describe accurately the feeling that pervaded among the triumvirate at Getty Oil headquarters during those months—the sense of pressure and unraveling. It was one thing to feel that a twenty-five-year career was ending for reasons beyond one’s control: the power of Wall Street, the value gap in the oil industry, the greed of a corporate raider. But it was another thing to feel that everything one cherished—career, power, position, community, the lifelong realization of work and ambition—was slipping away because of events that were not meant to be, events that had been anticipated and guarded against years before.
Perhaps it was presumptuous, perhaps it was even a little disingenuous, but Sidney Petersen did believe that he knew what the old man had wanted. J. Paul Getty’s life had been dedicated to the growth and control of Getty Oil Company. He had died some seven years earlier believing that his legacy would be preserved. And now his son, Gordon, was destroying it all—Gordon was a nice man, a good man, yes, they all knew that, but they also knew that he was not qualified to control a giant oil company, and with it the destinies of its executives, shareholders, and employees. By the summer of 1983, there was a palpable aggravation bubbling in Petersen’s gullet. When he hinted about his problems to people who knew the company and the family, he always received the same knowing, sympathetic look. “Oh, yes, I know about Gordon. He’s an interesting man.” That was the way one said it. Interesting. Or “unpredictable,” that was another word people used. This was not a mom-and-pop business, it was a giant international corporation. Was it so much to ask that order be restored to Sid Petersen’s universe, to the stockholders and workers and executives at Getty Oil Company? Was it so much to ask that Gordon Getty be required by some judge to return to the serene riches of his Broadway mansion, away from matters of business and finance, back to the music and composing he so clearly enjoyed?
Those who sympathized with Gordon Getty and despised Petersen for the deceits he practiced that spring said that Gordon was only trying to claim his rightful place in the family company. He had been ridiculed by his father, humiliated, told he was a failure in business, and now he was trying to prove himself. Morally, they said, he had that right. Legally, through his sole control of the family trust, he had that power. What right did Sid Petersen have to stop him?
When it was all over, when there was time for the actors to sort out their motivations and justify their actions, Gordon himself put it this way: “Of course, it was a challenge for me to see if I could step into my father’s shoes. Obviously, I could no more be as good a businessman as he was, or as good an oilman as he was, than he could write music like I do. Still, I felt that I could be a pretty good trustee. Now, I didn’t think I had a bit of his talent to run Getty Oil as a chief executive. I thought that I could run it as a controlling stockholder. You say, what about ambitions, the desire to satisfy and please your father even after he’s gone—sure, I think it’s a good, healthy thing for any individual to please his parents and to please himself and to be a success and to meet challenges. That kind of ambition is a darned good thing. I think I felt some of it.”
And so that summer they swam ahead, Petersen and Gordon, buoyant on a sea of moral certitude. For all the billions of dollars at stake, the barrels of oil, the copper mines and farms and refineries, their causes seemed at times oddly immaterial.
PART TWO
IN PLAY
9
On the Fence
As heat and haze settled viscidly over Los Angeles that first week in July 1983, steeping the city in a kind of opaque summer lethargy, so, too, did the layers of intrigue surrounding Getty Oil Company thicken and coagulate.
The plots and counterplots now afoot were each designed to clear away the company’s problems, but taken together they seemed only to compound its predicament. There were so many tangled strands now: the secret effort by Petersen, Winokur, and Copley to instigate a family lawsuit against Gordon; the negotiations with Pickens; lingering concerns about the Cullens and other corporate raiders; the million-dollar restructuring study undertaken by Goldman, Sachs, now nearing completion; and the continued thinking and tinkering by Gordon at his Broadway mansion, from where new ideas and plans seemed to issue weekly.
For more than a year, the shifting schemes had been largely confined to small, closely guarded circles at Getty Oil headquarters and around the Broadway mansion. The company’s board of directors, for example, knew virtually nothing about Petersen’s dealings with Gordon and the Lasky firm; the board had not been consulted even when Petersen authorized the huge payment to Goldman, Sachs for the stock price study. Neither had the board been fully informed about the overtures by Pickens and the contacts by Gordon with other potential corporate raiders. For his part, Gordon continued to act in similar isolation as sole trustee, receiving phone calls and reviewing documents in his basement study, never consulting with the family beneficiaries about his plans, and often relying on the Lasky firm for only the narrowest legal advice.
A widening of the intrigue to include at least the Getty Oil board was now inevitable. The company’s quarterly directors meeting was scheduled for Friday, July 8, and Petersen knew he could no longer postpone an explanation. That he had waited so long was questionable; to continue to make decisions solely through his cabal with Winokur and Copley was no longer viable. Petersen did not intend to tell the board everything—the plot to instigate a family lawsuit through attorney Seth Hufstedler would remain secret, for example. So, too, would the full extent of management’s battles with Gordon. But the dealings with Pickens and Goldman, Sachs would have to be disclosed to the board. The Goldman corporate analysts had finished their five months of work and were ready to present the confidential “black books,” as they were called, which contained analytical details and conclusions. Petersen would have to tell the directors why the study had been commissioned in the first place. He did not intend to say that Goldman had been hired to placate Gordon; that would make Petersen look foolish, since the investment banking firm had cost so much to hire. He still had an open mind about the study, he would tell the board. With all the takeovers and restructurings now raging in the oil industry, and with the company’s stock price so depressed, it was sensible for Getty Oil to see whether the ideas advocated by critics such as Pickens and Kurt Wulff made any sense, and also to examine steps that might defend the company against a takeover attempt. That, at least, was what the board would hear at their meeting early in July.
It was curious that Petersen had waited so long to bring the board into his confidence, and that even when he did so, it was with less than total forthrightness. To be sure, it was the prerogative of a chief executive to run his company as he saw fit; if the board didn’t like Petersen’s methods, it could discharge him. Still, the board of directors was the base of Sid Petersen’s power at Getty Oil. It was the board that had boldly chosen him, a finance man, over the traditional oil patch operating man, Robert Miller, for the chairmanship. It was the board that had welcomed the era of a “new” Getty Oil under Petersen, an era of diversification and leadership in the oil industry and the Los Angeles community. The directors, too, knew Gordon Getty. They had served with him for years. And yet, as Petersen plotted against his company’s largest stockholder, he kept his schemes and strategies mainly to himself.
One problem was that while the board supported Petersen, the Getty Oil chairman felt ambivalent about his directors. He liked them individually. He thought they were good, smart men. But overall, he was uncomfortable with the kind of board he had inherited. J. Paul Getty and the oilmen who ran the company for him in Los Angeles had always appointed certain kinds of directors—“insiders,” was the way they were described. There was Chauncey Medberry III, the retired chairman of Bank of America, who had been appointed in 1971 at the suggestion of George Getty. Medberry’s bank was, of course, a major supplier of credit and other services to Getty Oil. Similarly, a representative of
Security Pacific Bank, Fritz Larkin, had been on the board for many years. There had been a seat reserved for the late Lansing Hays, the company lawyer; one for Willard Boothby, managing director of Blyth Eastman, Getty Oil’s longtime investment banker; and one for Harold Stuart, who owned a large number of Getty Oil shares by virtue of his marriage into the Skelly family, whose Tulsa-based oil company was acquired by J. Paul Getty during the 1930s. In addition, there was Harold Berg, the former Getty Oil chairman, Norman Topping, an old friend of J. Paul Getty’s, Gordon, Petersen, and Miller. All of these directors had some financial connection with Getty Oil. They were not objective outsiders, corporate executives who would speak without encumberance for the public shareholders. They were company men.
Petersen wanted to change the board—“professionalize” it, as he would say—by appointing chief executives from large corporations that had no connection with Getty Oil. Such “outsiders” were common on the boards of most large, publicly owned American corporations. With its heavily “inside” board, Getty Oil was lagging behind the times. That was why in the previous September Petersen had recruited John Teets, the chief executive of the Phoenix-based Greyhound Corporation. Besides Teets, Petersen had also appointed Henry Wendt, chairman and chief executive of the giant SmithKline Beckman Corporation, the Philadelphia-based pharmaceutical conglomerate; and Dr. Clayburn La Force, dean of the UCLA Graduate School of Management. Teets and Wendt, particularly, were forceful, articulate, independent executives who had no personal interest in the fate of Getty Oil Company, or even in the fate of Sid Petersen, whom they had not known before their recruitment. On the one hand, Teets and Wendt supported the modernization of Getty Oil being conducted by Petersen. After all, they were part of the plan. On the other hand, the two executives had said adamantly that they were loyal to the public shareholders, not to Petersen’s career or to some sentimental view of Getty Oil’s past. For Petersen, then, the Getty Oil board was partly a mystery of his own making. It was hard to predict what someone like Henry Wendt or John Teets would think of the secret dealings with Gordon Getty. It was hard even to be sure that they shared Petersen’s view of Gordon and the trust. For that and other reasons, Petersen had closely confined knowledge about the extent of his plotting against Gordon.
The turning point, as it happened, came that sunny, smoggy Friday, July 8, when the directors assembled in the company board room on the executive floor of the Getty Oil headquarters building in central Los Angeles. There was a feeling on all sides, as the meeting began, that this would be a pivotal event.
For weeks, the groundwork had been laid by both Petersen and Tim Cohler, Gordon’s lawyer. Ever since February, Cohler had been awaiting the Goldman, Sachs study. He knew nothing about the plot to foment a family lawsuit challenging Gordon’s control of the trust. To him, the six months since the Bonaventure confrontation had been a kind of intermission. There had been meetings with Pickens and Wulff, yes, but Gordon had excluded his attorneys from those discussions. Besides, Gordon himself was eagerly awaiting Goldman’s verdict, which would be delivered at the July directors meeting. If the firm supported his ideas about royalty trusts, limited partnerships, or stock buy-backs, then the study might lead to a major Getty Oil restructuring involving Gordon and the trust. In the weeks before the July board meeting, Cohler had met with the Goldman, Sachs corporate analysts to review the progress of their work and to be sure the firm had fulfilled its promise to conduct an objective study.
Just a few days before the Friday directors meeting in Los Angeles, however, Gordon had thrown his attorney a curve ball.
Gordon was a member of the J. Paul Getty Museum board of trustees, which was chaired by Harold Berg, Petersen’s predecessor as Getty Oil chief executive. The museum owned 12 percent of Getty Oil’s stock. Its president was Harold Williams, a former corporate executive, dean of the UCLA Graduate School of Management (he was replaced by Clayburn La Force, the Getty Oil director), and chairman of the Securities and Exchange Commission under President Jimmy Carter. Sometime in late June, Gordon had traveled to Malibu to attend a museum trustees meeting, and there he had talked casually with Williams about the business of Getty Oil, in which Williams had an intense interest because of the 9 million shares he controlled.
The way Gordon had always figured it, the museum would sell its stock in any restructuring or takeover plan he devised. There was no reason for an art museum to own so much stock in an oil company, Gordon thought. The J. Paul Getty Museum owned its 9 million shares only by the fluke of its patron’s legacy, and it would probably be wise to diversify the wealth in order to generate income for art acquisitions. Besides, there was a tax law that applied to the museum which seemed to require that the institution sell its stock by 1988 or thereabouts. Naturally, then, Gordon had assumed that “the museum was a seller,” as he always put it.
That June evening at the museum offices, however, Williams had hinted in casual conversation that he might like to “stay in” if some deal could be arranged to raise the price of Getty Oil stock or wrest control of the company from Petersen. Gordon was surprised and excited. Between the trust and the museum’s holdings, Gordon and Williams controlled 52 percent of Getty Oil; they could snap their fingers and take control if they wished. It was the same 52 percent that had been owned by J. Paul Getty while he was alive. Gordon’s mind began to reel with the possibilities.
Just a few days before the July directors meeting, then, Gordon called Cohler and told him about his conversation with Harold Williams. Gordon said he might now like to pursue a “leveraged buy-out” of the entire Getty Oil Company in cooperation with Williams. Actually, the deal Gordon had in mind was known as a “leveraged buyout with a fence.” In structure, it was a fairly simple transaction. Gordon and Williams would do nothing with their stock. Using 48 percent of Getty Oil’s assets as a kind of collateral, they would borrow enough money to buy the 48 percent of the company’s stock owned by the public. Then Gordon and Williams would own the entire company. Williams would become chief executive, perhaps; Gordon would be named chairman; and Petersen probably would be fired. The Sarah Getty Trust and the J. Paul Getty Museum would share the company’s profits—and there would be no more public stockholders to worry about.
It was a neat trick. Leveraged buy-outs had become that year a popular device by which corporate “insiders” such as executives or directors could obtain ownership of their companies without putting up any cash. It worked like this: since the analysts said Getty Oil was worth as much as $240 a share, and since the stock was selling for about $60, Gordon thought that he and Williams could buy out the public stockholders for some premium above the market price—$80 or $90 a share, maybe—and profit enormously from their bargain. What distinguished Gordon’s plan from the most common leveraged buy-outs was that he wanted to erect a “fence” around his and Williams’ stock and around 52 percent of Getty Oil’s assets. In other words, not only would Gordon not ante up a dime of his or the trust’s or the museum’s wealth, he would protect 52 percent of the assets, the oil, “their” oil, from the perils of debt. For a man so often derided for lacking business sense, it was a sophisticated, even savvy idea. Gordon told Cohler that he wanted to explore the notion further with Harold Williams.
That instruction, delivered on Tuesday evening, July 5, in San Francisco, put Cohler in something of a bind. On Friday, the directors would consider Goldman, Sachs’ restructuring study, which had been ordered in the first place at Gordon’s insistence. Now Gordon was off in a different direction; he had outrun his own study. It was important, then, that the directors take no votes about Goldman’s recommendations at the Friday board meeting. Cohler wanted all the restructuring plans left open. That way, he and Gordon would have time to discuss a leveraged buy-out—or LBO, as it was called—with Williams.
Cohler telephoned Petersen in Los Angeles and asked if he would object to Harold Williams’ attending a briefing that Goldman, Sachs was going to provide Gordon on Thursday, the day
before the board meeting, in Los Angeles. The purpose of the briefing was to explain the contents of the black books before they were shown to all the directors.
Petersen regarded Harold Williams with acute suspicion. They served together on the board of directors of the Los Angeles Philharmonic Association, but the museum president was an enigma to Petersen. Williams clearly possessed the credentials to run Getty Oil as its chief executive—he had the credentials Gordon lacked. Ever since he had been named museum president in 1981, Petersen had wondered whether Williams coveted the title of Getty Oil chief executive, his title. He knew, of course, that if Williams and Gordon became fast allies in a takeover bid, the fight would be over in an instant, since together they controlled 52 percent of the company. Petersen had never been able to read Williams. The museum president seemed to have had a distinguished career, but he had moved around, from corporate life to academia to government and now to an art institution. As SEC chairman, Williams had been moderately active, but he was viewed by his commission staff just as he was seen by Petersen—as a mystery. For example, he had been known at the commission for burying his most important announcements deep in the texts of his speeches. In person, there was a settled, relaxed manner about him. He was a slumped, soft-spoken man with a full head of silver hair and thick metal-framed glasses. In conversation, he sometimes spoke so quietly as to be inaudible. The words drifted from his small, narrow mouth carrying no weight or urgency. One Getty Oil executive said that Williams seemed like an aging, somewhat overweight, highly elusive elf.