The Taking of Getty Oil

by Coll, Steve;

  “Pennzoil would like very much to have the museum sell its shares to us—either pursuant to the tender offer or in some other way,” Glanville said. They talked about price. Williams wanted to know how high Pennzoil would be willing to go if it could buy all of the museum’s shares separately from the tender offer.*

  Glanville indicated to Williams that Pennzoil might be willing to pay as much as $110 or more per share if the museum would sell its stock in one fell swoop.

  “At $120 a share, I am certain that the museum would want to sell,” Williams responded.

  Glanville said that he would take that under advisement. He was encouraged by this opening in the negotiations. For the past eighteen months, the museum’s 12 percent swing block of Getty Oil shares had been a kind of linchpin at the company—the museum played Gordon and management off against each other and managed to wield great control over Getty Oil’s affairs. By bidding for 20 percent, Pennzoil was hoping to become a kind of swing block itself, owning enough stock to combine with Gordon and take control. If Pennzoil could take the museum out of the picture altogether by purchasing its shares, Hugh Liedtke would have moved a long way toward his goal of total control over Getty Oil’s rich assets.

  It was not until the following morning, Wednesday, that Liedtke himself finally got in touch with Gordon Getty at the Broadway mansion. Ever since the Pennzoil board meeting on December 19, Liedtke and his advisors had been trying to find a way to reach Gordon privately once their takeover bid was announced. Liedtke wanted to assure Gordon as quickly as possible that he intended nothing hostile toward the Getty family trust. The trouble was that no one on the Pennzoil board knew Gordon personally, except perhaps by reputation, and so Liedtke was concerned that he would have to work through Gordon’s lawyers, which he did not want to do. One of Pennzoil’s directors, William Wilson, who was the American ambassador to the Vatican and a longtime California friend of Ronald Reagan, told Liedtke that he might be able to reach Gordon through a friend of a friend in San Francisco. On Tuesday, when the Pennzoil offer was announced, Wilson went to work on the telephone. Just before noon the next day, Liedtke received a message at Pennzoil headquarters in Houston that Gordon would be willing to take his call.

  “His reaction was cool,” the message from Liedtke’s secretary read, referring to Gordon.

  There was a telephone number, and Liedtke put the call through.

  “We’re prepared to work with you, Mr. Getty,” Ledtke said. “I want to cooperate with the trust—I think I share many of your objectives in terms of Getty Oil management and restructuring. For one thing, I think we could eliminate the corporate shell at the company and then you’d be able to stop paying the double tax on your dividends.”

  Gordon said little, but he was polite and friendly. He was receptive to Liedtke’s ideas; with his talk of shared goals and eliminating the corporate shell, the Pennzoil chairman had pushed the right buttons.

  “I am planning to call Mr. Williams,” Liedtke said. “I’d be happy to do that, but if you would prefer to do it, why, you can do it. But I’d like to sit down with you at the earliest possible time.”

  Gordon said that he thought that might be a productive idea. He added, however, “I’d prefer to talk to Mr. Williams myself.”

  “That’s fine,” Liedtke answered.

  The call ended cordially. Liedtke said that he would be available virtually anytime to meet with Gordon. Gordon thanked him and said that no doubt they would be in touch.

  That Wednesday afternoon, the telephone calls volleyed around the country like Ping-Pong balls in a wind tunnel. Liedtke telephoned Harold Berg at his home near Austin, Texas, and repeated the message he had delivered to Gordon. Berg called Dave Copley at Getty Oil headquarters and passed on the substance of his talk with Liedtke. Harold Stuart, the Getty Oil director from Tulsa, called Hugh Liedtke’s brother Bill to discuss Pennzoil’s offer.

  In Los Angeles, a shaken Sid Petersen spent nearly the entire day on the phone, talking to Bart Winokur in Philadelphia, Geoff Boisi in New York, and also with various members of his board, who were scattered about the country. The consensus was that if nothing was done, Pennzoil’s 20 percent bid would succeed—Boisi said that $100 per share was high enough to cause a full subscription to the offer. Petersen, Winokur, Boisi, and the directors also agreed that $100 was too low a price for them to approve on behalf of the public shareholders.

  Back in August, when Gordon had been talking about combining with the museum to launch a leveraged buy-out takeover against the company, Goldman, Sachs had for the first time studied the actual, underlying value of Getty Oil’s shares. The firm had concluded that the minimum value for the company’s stock was about $120 per share—twenty dollars more than Pennzoil was now offering. Goldman had even put its $120 valuation on paper in connection with a presentation to Gordon in San Francisco. If Boisi now advised the Getty Oil board that Pennzoil’s $100 offer was fair to shareholders, he would be contradicting his earlier advice. Then, if Goldman was sued by Getty Oil shareholders—and in any hostile takeover lawsuits were a virtual certainty—Boisi would be confronted with his August opinion and asked to explain why his firm had declared that something near $120 was the minimum value in August, while $100 was an acceptable price in December. That was an untenable position for both Goldman, Sachs and the Getty Oil board of directors. None of them wanted to lose their jobs and their company to Gordon Getty and Pennzoil. But if Getty Oil had to be sold, they at least wanted it to go at a fair price for the public stockholders—one high enough to protect them from the expense and liability of class-action shareholder lawsuits.

  And still, as Petersen, Winokur, Boisi, and the rest of them talked about it that Wednesday afternoon, there was the question of what Gordon Getty wanted. None of them had talked to Gordon since the Pennzoil bid was announced. What did he think about it? What was he planning? For months, they had discussed with Gordon the very possibility that was now upon them. They had warned him that his family trust might be squeezed out, that Gordon might be the juice. If Gordon was willing, Petersen and his advisors thought, the company and the trust could forge an alliance to beat back Pennzoil’s takeover bid. For more than a year now, the company had discussed a self-tender that would put Gordon in a majority position. If Getty Oil now tendered for 20 percent of its own stock at a price higher than Pennzoil’s $100 per share—say, $120, the Goldman, Sachs minimum—it could “make Pennzoil go away,” as Petersen put it, and buy enough time to either sell the company or negotiate a long-term power-sharing agreement with Gordon. As they talked that Wednesday afternoon, they asked each other: Would Gordon be willing to negotiate with the company to fight off Pennzoil? Or, did he have his own agenda, his own plans to unite with Liedtke and take the company? None of them knew. And none of them had any sure way to find out.

  Since the filing of the family lawsuit challenging Gordon’s right to be sole trustee, relations between the company and Gordon had been virtually nonexistent. The poison ran too deep. To the Lasky lawyers, Petersen’s instigation of a family lawsuit against their client seemed an unconscionable deceit. Now aware of the lawsuit, when Cohler, Lasky, or Woodhouse looked back on their long year of negotiations with Winokur, Boisi, and the rest—a year of arduous struggle to reach an accommodation between Getty Oil and Gordon—they saw the whole process in a different light. Petersen was never seriously interested in allowing Gordon to share power at the company, they believed. All those negotiations about handcuffs and self-tenders and LBO takeovers were just a sham, a filibuster to buy time for the family lawsuit, they thought. It was now hard for the Lasky lawyers to believe that any good could ever come from negotiations with Sid Petersen and his advisors.

  As they had been ever since his decision that Getty Oil’s directors were “a bunch of snakes,” Gordon’s hopes for power at the company lay with Harold Williams and the museum. And so, confronted by a bid for control from an outsider, Pennzoil, Gordon turned not to Petersen, but to Willia
ms. Shortly after his conversation with Liedtke on Wednesday, Gordon telephoned Harold Williams in Los Angeles and invited him to the Broadway mansion for a meeting the next day. Gordon said that in the wake of Pennzoil’s hostile tender offer, he had a new proposal to make to the museum.

  Williams agreed to fly up the next morning. His views of Gordon Getty were quite different from those of Sid Petersen and the Getty Oil advisors. He said that he considered Gordon to be an intelligent, talented, and capable man, though he did not believe that Gordon was qualified to be chief executive of a company the size of Getty Oil. Still, it was hard for Petersen and his advisors to be sure what Williams believed from one moment to the next. In London, his lawyer, Lipton, had described the idea of a joint consent takeover between Williams and Gordon as utterly absurd. Two months later, after the company’s complicity in the family lawsuit was disclosed, Williams had indeed signed a majority stockholders’ consent with Gordon, though he had stopped short of throwing out the board of directors. Now, in the face of a threatening bid by an outsider, who knew what Harold Williams would resort to?

  At the Broadway mansion that Thursday morning, Gordon laid out his plan to the museum president: the Pennzoil tender was potentially dangerous for both of them, he said, but there was one way to stop it cold.

  “Our response to the Pennzoil offer should be to act by consent and assume control of the company,” Gordon said. “I believe that we should immediately remove the board of directors. I would be installed as chief executive and you would become chairman of the finance committee. We would control fifty-two percent of the stock and there would be nothing Pennzoil could do.” Because of the consent they signed in December, Gordon and Willams wielded virtually absolute control over Getty Oil’s major policy decisions. Management could mount no defenses such as their threatened issuance of treasury shares in October.

  Williams listened to Gordon and then told him that he did not think the plan was sound. Gordon did not possess adequate experience to be Getty Oil’s chief executive, Williams said. Williams himself did not want the job. Gordon suggested that if his own credentials were the problem, then perhaps they could take joint control of the company and then conduct a search for a new chief executive to replace Sid Petersen. Williams said that he didn’t think that would work because after they fired Petersen and the directors, there would be an interim period with no one really in charge, this while Getty Oil was trying to fight off a hostile takeover from Pennzoil.

  “At $100 per share or higher, the museum is a seller and not a buyer,” Williams told Gordon.*

  The museum president wanted no part of Gordon’s plan. In fact, the audacity of Gordon’s proposal to fire the board and name himself chief executive had persuaded Williams that there was no longer any good reason for the museum to remain a shareholder in Getty Oil. When he telephoned Marty Lipton that afternoon to report on what Gordon had said, he told his lawyer that he wanted out. The museum would sell its shares to the highest bidder. Lipton was instructed to pass the word to the Getty Oil advisors.

  In fact, while Williams was talking with Gordon Getty at the Broadway mansion in San Francisco, Lipton had been meeting in his own office with Winokur, Boisi, Galant, and other advisors. By the time Williams called to say that he wanted to sell, that he wanted nothing to do with any company in which Gordon Getty had a role, Lipton had concluded a day of productive negotiations with the company designed to forge a united front against the Pennzoil bid. They had talked about launching a 20 percent self-tender at some price above $100 per share, then signing a document that would establish peace at the company. The proposal under discussion guaranteed that Gordon and Harold Williams would remain company directors with important committee assignments for at least three years. It even contemplated the forced retirement of Sidney Petersen as a means to acquire Gordon’s support for the deal. As Dave Copley’s handwritten notes about the meeting put it: “Query role of Sid Petersen. Company understands he does not have the confidence of Gordon Getty. Gordon Getty likely to insist on Petersen’s retirement as condition to agreement with the company.” There had been some telephone discussions with Getty Oil directors, including Henry Wendt, about the possibility of Petersen’s forced retirement. No decision had been made, but Wendt, for one, did not believe it was a sensible idea.

  Regardless, Lipton announced that Thursday afternoon, the deal was now off. He told Winokur and Boisi about Williams’ meeting with Gordon in San Francisco that morning. Winokur and Boisi were not exactly surprised; nothing about Gordon could shock them anymore. But they were disouraged. Williams’ decision to get out of Getty Oil, to sell his shares as quickly as possible, meant that Petersen and his advisors could only ward off Pennzoil through an alliance with Gordon. And they knew that it would be much more difficult to make a deal with Gordon than it would be to forge one with Marty Lipton and the museum.

  As the Getty Oil advisors discussed in New York that afternoon how they might persuade Gordon to join them in a battle against Pennzoil, Gordon himself was winging toward them. After his morning meeting with Williams, Gordon rode to the airport with his wife Ann and boarded a plane to New York. Along with Ann, Gordon was accompanied on the flight by Mark Leland, his personal financial advisor and a former assistant secretary of the treasury under President Reagan, and two of his Lasky firm lawyers, Cohler and Woodhouse. That same day, Dave Copley had issued notice by telegram of an emergency Getty Oil board meeting to be convened in Manhattan on Monday evening, January 2; the board was to formally consider its response to Pennzoil’s tender offer. Gordon had decided that since Williams was unwilling to fire the board, the best place for him to conduct his negotiations with Getty Oil and Pennzoil was in New York. Late that night, he checked into a two-room suite at the Pierre Hotel on Fifth Avenue, overlooking Central Park. Over the next week, he would only rarely leave the hotel. As it had been all along, those who wished to control the future of Getty Oil Company would have to come to him.

  Ever since his initial phone call to Gordon on Wednesday, Hugh Liedtke had been pressing for a face-to-face meeting. By Friday, December 30, he had succeeded only in arranging a meeting of the advisors for Pennzoil and the trust in New York. The meeting convened early Friday afternoon in the Manhattan offices of Lazard Frères; Liedtke was still holding the fort at Pennzoil headquarters in Houston. Representing him were Glanville and Arthur Liman, a well-known partner at the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison. Liman had made his considerable reputation in both corporate work and criminal law. His speciality was defending white-collar criminals. Like Marty Lipton and Felix Rohatyn, Liman was a member of New York City’s “shadow government” of Manhattan lawyers and financiers; he served on a number of special mayoral commissions that investigated municipal corruption. Liman knew Lipton and Rohatyn well. With the similarly well-connected Glanville, he would become over the next week a point man for Hugh Liedtke’s dealings with the Wall Street lawyers and bankers now in control of Getty Oil’s destiny. Representing Gordon at the meeting that Friday afternoon were his investment banker, Marty Siegel, and his lawyers, Cohler and Woodhouse.

  It was Siegel who began the discussion. “Gordon Getty is prepared to join with Pennzoil in acquiring Getty Oil,” Siegel announced to the group. “But he will do so only if Pennzoil is prepared to make the acquisition on a basis in which Gordon Getty would end up owning four-sevenths. That’s a nonnegotiable condition. Gordon Getty would never permit himself to be in a minority position.

  “And there can be no negotiating about the make-up of a new board of directors,” Siegel continued. “The board would also have to be divided four-sevenths, three-sevenths, between Mr. Getty’s nominees and Pennzoil’s.

  “There is also no way that the company can be acquired at the $100-per-share price Pennzoil is offering. I’ve been in touch with Marty Lipton. He tells me that the museum is a seller. But I’d like to get your reaction to a number. What do you think your reaction would be if I floated a
number like $120?”

  “You’re taking all of the fun out of it at $120,” Glanville answered.

  “Well, there certainly is no sense in pursuing this unless Pennzoil is prepared to go at least to $110.”

  “What protection is Pennzoil going to have if Gordon Getty is going to end up with control of the board and four-sevenths of the company?” Arthur Liman asked. There was some discussion of the “divorce clause” that Hugh Liedtke had talked about with his own board of directors—Pennzoil wanted some kind of “out” if it ended up owning a company controlled by Gordon.

  “The only protection that Pennzoil can have is a divorce clause,” Siegel answered. “If the partnership doesn’t work out after a year, Getty Oil’s assets could be divided proportionately, four-sevenths to Gordon Getty and three-sevenths to Pennzoil.”

  Glanville and Liman indicated that the basic terms of Siegel’s proposal sounded like something that Hugh Liedtke would be willing to entertain—so long as the divorce clause was a part of the package.

  “We’d like all of these terms and conditions to be the subject of a summit meeting between the two principals, Liedtke and Gordon,” Liman said.

  “A summit meeting can take place after all the conditions have been agreed on, but Mr. Getty prefers that the matter be negotiated by the bankers and not by the principals. We would be better served if we conducted the negotiations that way,” Siegel responded.

  Liman said he would pass that along to Liedtke. He used a phone in the Lazard meeting room to telephone the Pennzoil chairman at his Houston office. Liman and Glanville outlined the deal proposed by Siegel and explained that Siegel insisted that the terms be finalized and agreed upon by the bankers and lawyers before Liedtke met directly with Gordon.

  “Mr. Getty’s people want to have a structured meeting,” Glanville told Liedtke.