The Taking of Getty Oil

by Coll, Steve;

  Cohler began to calm down; Winokur’s suggestion seemed to intrigue him. Perhaps Cohler had spoken too soon when he insisted the week before that Gordon would never consider an LBO without a fence. Perhaps Gordon had told him in the interim that he would be willing to risk his family’s fortune to take control of Getty Oil. Whatever the reason, Cohler now said that he was impressed by Winokur’s commitment to a takeover proposal that might well result in the loss of Sid Petersen’s job. Cohler said that he would return to Los Angeles after his bridal dinner in San Francisco that evening. The discussions could continue.

  On Friday, the meeting was restored to its earlier mood of civility. Gordon was indeed willing to consider an LBO takeover without a fence, Cohler reported. He, Winokur, and Boisi agreed that Goldman, Sachs should study the proposal. It would take some time, they also agreed. August was approaching, Cohler was going off on his honeymoon, and the rest of them had summer vacations scheduled. Boisi would return to New York, and with the help of his firm’s corporate analysts, he would produce another detailed study. For the first time, Goldman would have to decide exactly how much it thought Getty Oil Company was worth, and it would have to declare an official, minimum fair price for the public shareholders. Meanwhile, Cohler said, the Lasky firm would begin to draft the legal papers necessary to implement the takeover. When they reconvened in a month’s time, he said, they should be prepared to move quickly. An LBO takeover had to be consummated swiftly; otherwise, outside raiders might try to jump in at the last moment and snatch the company away.

  Cohler was pleased. Gordon’s success was in some ways linked to his own. If Gordon took control of Getty Oil, Cohler might well become one of the company’s leading executives—certainly, Gordon would need good advice more than ever. Encouraged, Cohler returned to San Francisco and to his wedding. The game was on, yes, and Winokur and Boisi were still on the opposite side, but they had all agreed now to try a deal together. If the LBO without a fence worked, Boisi could help Gordon fend off unwanted outsiders. And if all went well, Gordon Getty would own the giant Getty Oil Company by Labor Day.

  11

  Blood on the Floor

  In time, intrigue acquires its own momentum. Complexity accumulates in layers, like grime on a windshield, until finally, the road ahead is obscured from view. At Getty Oil Company that summer, it was not merely that the contest for control depended increasingly upon arcane financial analysis and the advice of sophisticated specialists, whose training and intelligence permitted them to justify plausibly even the most outrageous course of action. The problem was also that the delicate balancing act so long sustained between Sid Petersen and Gordon Getty had suppressed the most basic of personal resentments. The advisors, and even at times Petersen and Gordon, preferred to speak in a neutered, passive, pedantic language. They talked about “facilitating a transaction” and about “preserving the independence of the board” and about the importance of behaving like “gentlemen.” In part, this inertness reflected the sterile culture of a large American corporation. In part, too, it was an issue of class—Gordon, more than any of them, valued the polite refinement of manner he associated with wealth and high position. Moreover, the lawyers controlled the words that were spoken and the tone of negotiation, and they rightly suspected that the events unfolding at the company would later be subject to the scrutiny of litigation. They hoped their clients would not say or do anything that was indefensible in a courtroom.

  Most important of all, however, was a kind of unspoken understanding that bound most of them together. They were very much like family. They had known each other for decades. They knew each other’s marriages, and divorces, and illnesses, and weaknesses, and triumphs. They had all served the old man, J. Paul Getty, and they were bound not only by his money but by his vision of legacy: a company, a family, a museum, all intertwined. The old man had intended for tens of thousands of Getty Oil employees, several generations of the Getty family, and one of the richest art museums in the country somehow to share the same destiny. For Sid Petersen, Moses Lasky, Dave Copley, and some of the others, there was always a strong impulse to settle their problems “between friends,” to close the door on the outsiders and hammer out a compromise, a “family solution,” as it was later described by the daughters of George Getty. They shared a reluctance to confront each other or to overstep the bounds of family propriety. Petersen, for example, refused to talk directly with the Georgettes about instigating a lawsuit against their Uncle Gordon; he insisted that the approach be made through their attorney, Isaacs. And even though Isaacs appeared to do nothing about the company’s reports on Gordon, Petersen declined to “take advantage” of his relationship with the Getty family by meeting directly with the Georgettes. That would be unseemly, he thought. Similarly, the Lasky firm was willing to negotiate for month after month with Petersen and the company because it was convinced that permanent harmony could be established—Lasky had never wavered from the view he expressed to Petersen over dinner back in May 1982, that through diplomacy and decorum Gordon Getty could be controlled. Indeed, Lasky and Cohler often seemed willing to go further than Gordon in negotiations with Petersen.

  All these intricate elements informed that moment in Moses Lasky’s San Francisco offices on the afternoon of Thursday, September 1, 1983, when the relationship between Gordon Getty and the Getty Oil Company was irrevocably changed.

  They had been talking for the better part of an hour in the main conference room—Lasky, Cohler, Woodhouse, Gordon, Petersen, Winokur, Boisi, Copley, and a couple of analysts from Goldman, Sachs. They had met to discuss the LBO takeover by Gordon which Goldman had studied all during August. The numbers had been crunched, the asset values analyzed, and the debt ratios calculated. Boisi had told the group that an LBO without a fence was possible, but risky. It was Goldman’s view that the minimum value of the company’s stock was near $120 per share. If Gordon borrowed the money to buy out all the stock at that price, using Getty Oil’s assets as collateral, he would incur an enormous debt load. The debt was not prohibitively high, but it was a gamble. Hearing this, Gordon had announced that despite his earlier enthusiasm for an LBO takeover, he was not willing to assume so great a risk—he was concerned about his fiduciary obligations as trustee of the family fortune. While Gordon personally might be willing to take a chance on an LBO takeover, his brothers and nieces and nephews might not be, and they could sue to prevent the deal. Gordon was pleased that Goldman had studied the matter so thoroughly, he said, but now that he saw the numbers, particularly those pertaining to debt, he was unwilling to go forward. He told the group his plans for an LBO takeover were off.

  So there they were, returned again to the original impasse. What were they supposed to do now? They could talk again about the stock buy-back program that would put Gordon in a majority position, but Cohler had already made it clear that “handcuffs” were unacceptable and Winokur had been equally adamant that Getty Oil would not be handed to Gordon without “protections” for the minority shareholders. Something had to give.

  At that moment, Moses Lasky looked across the conference table at Sid Petersen. In Lasky’s view, Petersen had been promoted to chairman and chief executive in no small part because of Lasky’s support and recommendations over the years. They shared a kinship. They shared a common purpose.

  “Sid, don’t you think it would be useful if you and I went into my office and just had a chat about where we are?” Lasky asked.

  “I think that might be a very constructive idea,” Petersen answered. “But I’d better check with my lawyers about it first.”

  Petersen, Winokur, and Copley stepped out of the glass-walled conference room and huddled together in the hallway. After a few minutes, they returned.

  “That’s just fine, Moses, but I’m advised that I shouldn’t meet with you, because you’re counsel for Gordon, unless I have my own counsel present,” Petersen said.

  “So, Sid, it has come to this, has it? Well, okay.”


  It was hard to say whether Lasky was hurt or angry or surprised, or all three. But he clearly was changed. On its face, Petersen’s request was perfectly reasonable; he and Lasky were on opposite sides of a business problem, and the Getty Oil chairman simply wanted the advice and protection of his lawyer, Winokur. But to Lasky, Petersen’s refusal to meet privately was a personal affront, and it was an indication that a “family” solution was now out of the question. It was time to take the gloves off.

  So they moved around the corner to Lasky’s private office—Petersen, Winokur, Copley, Cohler, Woodhouse, and Lasky. Gordon was not invited; Lasky said he thought that more could be accomplished without him.

  “It’s clear that Gordon isn’t going to do an LBO takeover. He’s clearly rejected that. The real solution now, then, is to get the trust in a control position,” Lasky began.

  “The company is unwilling to do that,” Winokur answered, speaking for Petersen as he increasingly did.

  “If the company and the trust can find a way to reach an agreement, putting the trust in a majority position, then you’ve solved the problem of an outside raider trying to take Getty Oil over. The trust would own fifty percent and no one could touch the company,” Lasky said.

  “The issue is not so much the trust as it is Gordon,” Winokur finally declared.

  “You’re acting as if Gordon has to come to you on bended knee, as if you’re the only people who have the right to exercise judgment as to what is appropriate for all the shareholders—nobody else gets to have any thoughts,” Cohler said. “Let’s not forget here that Mr. Getty owns forty percent of the stock. There are any number of things that he can do unilaterally, which we are trying to find a way to avoid. But the gentleman is not powerless if you drive him to exercise his rights under the law.”

  “What exactly do you have in mind?” Winokur asked.

  “You can’t play dumb with me, Bart. You know exactly what can be done.” Cohler was forceful.

  “Well, you’re a lot smarter than I am, then. I haven’t figured out anything he can do. He only owns forty percent.”

  “Well, then, I guess there’s no point in discussing this.”

  “Obviously, Gordon could launch a proxy fight against management,” Lasky pointed out. “He would only need ten percent, at most, of the shareholders’ votes to get control of the company on his own.”

  “You should understand that management is determined not to permit that,” Winokur answered. “We’d rather put the company up for sale than risk Gordon getting control.”

  Tempers were flaring; this was the direct confrontation over power and control that had been so studiously side-stepped during the past six months. Petersen had wanted to avoid such open warring with Gordon and the Lasky firm precisely because it might lead to a sale of Getty Oil, voluntary or involuntary. It would be a Pyrrhic victory indeed if the company was desperately sold to prevent Gordon from taking control. None of them wanted that to happen.

  “Look, it’s better to have the blood on the floor in this room, among ourselves, to see where we are, than to have it spread out in public, on the financial pages. At least we should see if we can’t avoid having the blood spill out there,” Cohler said.

  “The company would feel differently about taking Gordon into a majority position if we could get an institutional cotrustee appointed,” Winokur ventured. He made no mention of the company’s contacts with Bank of America and Seth Hufstedler; no family member had yet come forward to sue Gordon over the issue.

  “That’s totally out of the question,” Lasky said. “You can’t have a bank as a trustee.”

  A few minutes later, Winokur raised the idea again; it was the only way to break the impasse, he said. The company was unwilling to put the trust in control unless there was some way to restrain Gordon once he gained majority power.

  “Look, Bart, if we’re going to try to do something constructive to solve the company’s problems, we shouldn’t try to solve the company’s problems at the trust level,” Lasky said. “And besides, you know that the minute anybody suggests the possibility of a cotrustee, Ronny would come running in and say that he was a candidate and we would be all the way back into those problems again.”

  “We don’t want Ronald. We want a bank, an institution.”

  “It wouldn’t be good to have a bank as trustee because they aren’t any good at dealing with or standing up to the management of big companies,” Lasky answered.

  “Well, what if there were two additional cotrustees, besides Gordon, each with half a vote. Gordon would have one vote. So that way, if Gordon had an idea that was genuinely appealing, all he would have to do is persuade one of the two cotrustees. It would only be if his idea is so off the wall that both of the others are against him that they could veto him.”

  “If we can find a way to get Gordon into a majority position, then Gordon could have another seat on the board. I would join the board and that could address some of your concerns about Gordon,” Lasky responded.

  “If we got an extra one or two cotrustees to serve with Gordon, we would be willing to have you come on the board,” Winokur said.

  Lasky asked to speak with Winokur alone, and they stepped out of the office and into the hallway.

  “If we’re going to make an accommodation,” Lasky said when the office door was closed, “Gordon is going to have to be made chairman of the board. He’s going to need an office in Los Angeles and he’ll have to be treated with respect. He’s not going to run the company day-to-day; Sid will still be in charge. But he needs that title. I’d appreciate it if you could convince Petersen to accept this. It’s the only way to move forward.”

  “I’ll talk to him,” Winokur said.

  For a few moments, they broke into smaller groups, wandering through the law firm. Winokur spoke privately with Petersen. When he was finished, the group reconvened in Lasky’s office.

  “Sid will agree to step down as chairman if we can get the two cotrustees appointed, each with a half vote, to serve with Gordon. If you can convince Gordon to accept the two cotrustees, then the company will take Gordon to fifty-one percent, Gordon will become chairman, and Moses will become an additional director,” Winokur proposed. Despite the hyperbole of their negotiations, the Getty Oil leaders respected Lasky’s judgment.

  “I don’t know if the directors will go for that plan, but I’d be willing to present it to them,” Petersen said.

  “Look, you’ve made the suggestion about cotrustees often enough in this meeting. We are trying to find something that will work, I know. So I will take the proposal to Gordon. But I will tell you this: I will not recommend cotrustees to him, or anything like that. I’m absolutely opposed to it. I’m confident that Gordon will agree that co-trustees would be a huge mistake.”

  On that discouraging note, the meeting ended. Petersen and his Getty Oil advisors arranged for a limousine to take them out to the San Francisco airport; they would be flying back to Los Angeles that evening. Lasky said that he would meet with Gordon as soon as possible and inform them of his client’s response.

  That evening, only hours after Petersen and his advisors had departed, Lasky and Cohler sat down with Gordon in Lasky’s office to discuss Winokur’s proposal. On Lasky’s recommendation, Gordon rejected the idea of cotrustees; he was unwilling to share control of the family fortune with anyone. But Lasky proposed a compromise to his client. Perhaps they could address the company’s concerns about the caprice of Gordon’s power through a different mechanism. Under Lasky’s plan the company would buy back enough stock to put Gordon in control. Gordon would be named chairman and Lasky would be appointed a director. Then, the corporation’s by-laws would be amended to create a new “supermajority” of the board to approve major policy decisions, such as mergers, acquisitions, royalty trusts, or other substantial restructurings. It would take three directors to veto any proposal. Gordon alone could not stop a deal, and neither could Gordon and Lasky acting together. They would have to pe
rsuade one other director, whose appointment would be approved by management, to go along.

  Lasky continued, “This way, I can put it to Sid, ‘Look, if you want to do something of a large magnitude at the company, then Gordon can’t block it unless he can persuade one other person besides myself. And if you’re not comfortable with that, if you can’t have a board of responsible people where this arrangement doesn’t pose problems for you, then you don’t have the independent board you’re always talking about.’”

  After discussing Lasky’s plan into the evening, Gordon finally agreed. If the company would put him in control, he would go along with the restrictions proposed by Lasky.

  The next morning, Lasky called Dave Copley.

  “We’ve talked with Gordon and we think there would be some value in having another meeting. If you and Sid and Bart will come up here today, we think it would be worthwhile.”

  The Getty Oil triumvirate flew up to San Francisco that Friday afternoon in a company plane. Winokur, for one, assumed that Gordon had accepted the idea of cotrustees. Instead, when they arrived at Lasky’s office, they were told about the plan for a “supermajority.”

  They talked about it for hours, well into the night, and most of the discussion centered on the number of directors required to veto any major policy proposal. Lasky insisted that the total number should be three. The company wanted to consider a larger number, so that if Gordon proposed a major change at the company he would have to persuade three or possibly four other directors that his plans were sound. There was also a question about how new directors would be nominated when the current board members began to retire. By the end of the meeting, they seemed to be close to an agreement.

  “This is not just some wild, wide-eyed idea of the lawyers,” Cohler emphasized. “Gordon is on board.”

  The earlier ambience of comity had been partially restored; they were beginning to mop up the blood on Lasky’s floor. That night, Petersen, Copley, and Winokur flew back to Los Angeles, agreeing that they would attempt to hammer out the details in the next few days. Over the weekend, Cohler spoke with Copley by telephone several times. On Monday, they spoke again.