by Coll, Steve;
At the appointed hour, Liedtke and his Pennzoil team arrived at the Pierre, a large and ornate limestone tower on the eastern edge of Central Park decorated by American and Canadian flags. It was a clear and bitterly cold afternoon. When they entered Gordon’s suite, they found that the Getty scion was surrounded by his usual coterie of advisors: Siegel, Woodhouse, Cohler, and Mark Leland. Ann was in the bedroom and at one point during the two-hour meeting she emerged, was introduced to the Pennzoil executives and advisors, and then left.
The mood at the beginning of the meeting was watchful and expectant; Hugh Liedtke had demanded this summit and it was now up to him to charm Gordon Getty. This Liedtke proceeded to do with great aplomb. When they had all shed their coats, the Pennzoil chairman sat down and began to talk with Gordon about the history of his association with the Getty family. Leidtke talked about his wildcatting days in Texas and Oklahoma, and about his encounters with J. Paul and Jack Roth, who was second to George Getty at the company after J. Paul moved to England.
“Our interest in coming into the picture is an attempt to be constructive,” Liedtke said. “We could see from the outside that Getty Oil has very, very serious problems. We can see the conflict between the three different parties and we can see the breakdown in morale at the company. I’m aware from other sources that the company has lost a number of its really good explorationists.” Liedtke was referring to the geologists whose search for oil was the nearest thing to an intuitive art in the oil industry.
“I think the record is fairly clear that we did a good job for your father,” Liedtke told Gordon. “We doubled the value of his investments in South Penn in a year. Then he offered to sell it out to us in 1963 and we accepted. Your father even sent me a congratulatory telegram. I think we might be able to do the same thing for Getty Oil. We have a public record of straightening out situations which are in difficulty and making them viable, profitable, growing concerns.
“Mr. Getty,” Liedtke continued, “I think you should assert yourself. I think that the performance of Sid Petersen is outrageous, and if I were in your shoes, I would assert myself in various ways. This is one way to do it: to work out a plan which would put Getty Oil back in the oil business and try to build a company that your late father and grandfather spent some hundred years trying to build. When you own forty percent of a company, you have the right to be treated halfway decent, and if you are not, why, then I think you should take action to assure yourself that you are given a fair hearing and not jacked around by somebody who seems to be bent on destroying you and your family.”
As Marty Siegel sat in the hotel room and listened to Hugh Liedtke’s speech, he thought to himself, This fellow is pretty smooth. It was Siegel’s first encounter with the Pennzoil chairman, whom he knew by reputation as an excellent oilman and a hard-nosed negotiator. He is doing a very nice job of making Mr. Getty feel at home and relaxed, Siegel thought.
And the young investment banker was right—Gordon Getty was taken by Hugh Liedtke’s presentation. Liedtke said that Pennzoil’s role was “to maximize value for the large stockholders” in Getty Oil. That was precisely the idea that Gordon had been trying to articulate to Sid Petersen for eighteen months. Gordon talked with Liedtke about eliminating Getty Oil’s “corporate shell” and trying to find a way to avoid double taxation of Gordon’s dividends. They were on the same track. Gordon appeared to be excited.
“I’m a buyer and not a seller,” Gordon finally declared.
That remark threw off the Pennzoil executives for a moment; they weren’t sure what Gordon meant. No one had ever contemplated that Gordon or his family trust would actually buy any shares in a deal with Pennzoil. The idea behind the four-sevenths, three-sevenths plan was that Gordon would stand pat, Pennzoil would use its money to buy three-sevenths of Getty Oil’s stock, and then Getty Oil’s assets would be used to borrow enough money to put Gordon’s family trust in a four-sevenths position. That, actually, was what Gordon meant when he said that he was a buyer: that he would take control of Getty Oil.
Even though Gordon expressed his willingness early on to join with Liedtke, there were still a number of important points to be discussed at the Pierre that afternoon. Marty Siegel joined the conversation and outlined in detail the provisions of a four-sevenths, three-sevenths plan: Gordon would be named chairman, Liedtke would be president and chief executive, Baine Kerr would be chairman of the executive committee. There was some discussion that Gordon’s lawyer, Tim Cohler, might become general counsel of the new company. In addition, appointments to the board of directors would be made in proportion to the four-sevenths, three-sevenths arrangment. Both sides agreed to what Liedtke called the “split the blanket clause” providing for a division of Getty Oil’s assets after one year if the new arrangement didn’t work out.
There was a discussion, too, about what would happen if the Getty Oil board of directors refused to go along with the plan. Liedtke was concerned that Petersen and his board might try to block the deal simply to spite Gordon. The directors were to meet at the Inter-Continental Hotel in Manhattan the next evening; they knew nothing about Liedtke’s talks with Gordon. Liedtke, Kerr, Gordon, and his representatives discussed signing a second agreement, besides the one covering their four-sevenths, three-sevenths deal: they would all sign a letter among themselves saying that if the Getty Oil board refused to approve the joint takeover between Gordon and Pennzoil, they would try to immediately fire all of the directors. That plan had a certain appeal to Gordon Getty, who had been trying for so long to overthrow the “snakes” on the board. The trouble was that such an agreement would have no teeth unless the museum, too, signed on. Gordon controlled only 40 percent of Getty Oil; he could not unilaterally fire the directors. But if the museum would cooperate, then Pennzoil would have signed up more than 50 percent of the company’s stock and an agreement to throw out the board would be enforceable.
Gordon said that he would be willing to sign such a letter and the Pennzoil executives said they would try to enlist the museum’s cooperation.
Finally, however, there was the matter of price. On this point, Hugh Liedtke was exceptionally stubborn—he did not want to raise his offer above $100 per share.
“Our tender offer is progressing very well. It will probably be oversubscribed at $100,” Liedtke said. “No one thinks that anyone will offer more than $100 and I even wonder if we should have been so bold as to go that high in the first place. I would take a very dim view of any price over a hundred. Our offer is very heavily subscribed by the public shareholders at this price, so there’s no need to go higher.”
“There is a need,” Marty Siegel countered. “I can tell you that the Getty Oil board will never approve a deal at $100 per share. The minimum price that the directors are going to be willing to accept as a fair price for the public stockholders is $110.” Siegel had attended the meeting with Boisi, Winokur, and Lipton the day before, where all three had agreed to a self-tender auction plan at $110.
“How about $105?” Liedtke asked.
“It has to be $110. I can tell you that the board won’t accept anything lower.”
Liedtke was uncomfortable—it felt to him like he was bidding against himself. Who was now offering more than Pennzoil? Who was ever going to offer more than Pennzoil? But Siegel continued to argue that the problem was not some abstract notion of what was a “fair price,” it was a fundamentally practical difficulty: the Getty Oil board would not approve a price lower than $110. The extra ten dollars was not going to benefit Siegel’s client—Gordon was not selling. It was necessary to overcome the Getty director’s inevitable resistance to a takeover by Gordon and Pennzoil, Siegel said. At the Pierre that afternoon, Liedtke never explicitly said that he would accept the $110 figure, but he made it clear that he was enthusiastic about the agreement he had reached with Gordon, and that he would do what was necessary to consummate the deal.
It was about six o’clock when the meeting ended. Liedtke said that his lawyers
would spend the night drawing up the necessary papers and that he would return to sign them with Gordon the next day. Meanwhile, the Pennzoil executives said, they would do what they could to sell their takeover deal to Marty Lipton and Harold Williams.
While Hugh Liedtke, Baine Kerr, and Perry Barber returned to Pennzoil’s apartment at the Waldorf, Marty Siegel and Jim Glanville walked one block from the Pierre to Marty Lipton’s luxury apartment building. They joined the lawyer’s New Year’s Day party. Siegel quickly coralled Lipton and Arthur Liman, who had been at the party since four o’clock—Siegel said that he had to speak with them privately. The trio stepped into a hallway outside Lipton’s kitchen, away from the other guests.
“Liedtke and Gordon have met and they have reached an understanding subject to the agreement of the museum,” Siegel began. “Liedtke has agreed to a four-sevenths, three-sevenths split, with Gordon controlling the majority of the board. Gordon has agreed that Liedtke will be president and chief executive and that Gordon will be chairman. Pennzoil has agreed that it will acquire the shares of the museum and I think Pennzoil is prepared to offer $110 a share, but it will do that only if the museum is ready to sell at that price.”
Lipton was surprised by Siegel’s declaration. He had been told earlier, when Liman arrived at the party, that Liedtke and Gordon were meeting face to face, but he thought that Gordon had accepted the self-tender auction deal negotiated in Lipton’s office on Saturday—they were just waiting for the papers to be signed, Lipton had thought. Now, that deal was apparently off and a new one seemed on the verge of completion. The museum had no choice but to negotiate: together, Gordon and Pennzoil could squeeze Harold Williams out if he refused to cooperate.
“Either I or my investment banker will get in touch with Pennzoil at the Waldorf tonight,” Lipton said.
Liman left the party and returned to the Waldorf to confer with Liedtke. Lipton’s banker, Jay F. Higgins of Salomon Brothers, arrived a short time later. He stayed only ten or fifteen minutes—he said that he had no authority to make a deal and his servile manner seemed to irritate Liedtke greatly. When he saw Higgins floundering, one of the other bankers in the room hustled him out of the Pennzoil apartment. Glanville then telephoned Marty Lipton at his apartment.
“Higgins was here, but he doesn’t have the authority to act for the museum in making a deal,” Glanville said. “I am prepared on behalf of Pennzoil to increase the offer from $100 per share to $110 and to buy the museum shares at $110, provided the museum is prepared to accept the $110 price.”
“Ridiculous,” Lipton said. “I’ll call you back in five minutes. I’ve got to talk to Williams.”
Glanville hung up and repeated what Lipton had said to the others in the room. They waited. The phone rang, and Glanville answered. He listened for a moment and then cupped the receiver.
“Marty says he accepts. There are some terms, and Arthur, you’d better get on the phone so that we get them straight.”
Liman picked up an extension. Lipton was there.
“The museum is prepared to accept the $110 provided that the same offer is made to all other Getty shareholders, so that the museum will not be receiving a premium over anyone else,” Lipton said. “I want the museum treated the same as everyone else. At the same time, we want price protection, a top up.” A “top up” or “most favored nations” clause would provide that if Pennzoil or anyone else ever offered to pay more than $110 for a share of Getty Oil stock, the museum would automatically receive the same price.
Liman repeated Lipton’s terms to everyone in the Waldorf apartment.
“Tell him yes,” Liedtke said.*
Liman and Glanville, who were still on the phone, then both asked Lipton whether, in addition to selling the museum’s stock, he would sign a consent agreement to remove the Getty Oil board of directors if the board did not agree to the $110 deal.
“I’m not authorized to agree to that,” Lipton said.
“The Pennzoil people are concerned that they have raised their bid from $100 to $110, and they now want to make sure that this isn’t simply frustrated by the board, given the fact that the board members could do that,” Liman responded. “They are very, very edgy. The trustee, Gordon, is prepared to sign a consent to remove the board. Wouldn’t you be willing to do the same?”
“It’s not part of the bill. I’m not authorized to give that and I won’t give that,” Lipton insisted.
“Well, what good is your acceptance at $110 if the Getty Oil board can kill the deal, not accept it, and just try to negotiate Mr. Liedtke up from $110 to a higher price? He’s already gone from $100 to $110.”
“It’s not part of the deal,” Lipton repeated. “But if this board acts to obstruct this transaction, then Mr. Williams will recommend to the board of the museum that they sign a consent and remove the board. We’re not going to let the board stand in the way of a transaction. There will be a deal at the board meeting. It’s going to come to a head and be resolved at the board meeting tomorrow.”
The conversation concluded and Liman reported Lipton’s position to Liedtke and the other Pennzoil executives and advisors. Liedtke was worried.
“I don’t understand how, if Lipton has the authority to accept the $110, then he doesn’t have the authority to sign the consent and remove the board if they block the deal,” the Pennzoil chairman said. “That doesn’t make any sense. I’m concerned that I’m being set up here—they’ve got me bidding against myself. They got me to go from $100 to $110, and now they’ll try to get me to go beyond that, this time using the board’s reluctance as a pretext. I don’t like the feel of this. Can I trust Lipton?”
“I trust Marty Lipton,” Liman answered.
“I trust him, too,” Glanville concurred.
Liedtke was not fully satisfied, but there was nothing more he could do. The Waldorf apartment emptied of advisors and the Pennzoil executives retired for the night.
As they flew from Los Angeles to New York in a Getty Oil jet that Sunday night, Sid Petersen and Dave Copley were totally unaware of the deal for control of Getty Oil that had been struck between Gordon, Pennzoil, and the museum that afternoon. The last they had heard was that on Saturday, Winokur, Boisi, Lipton, and Gordon’s representatives had agreed to draw up a self-tender auction plan that would beat back Pennzoil’s bid. Petersen had high hopes that the auction agreement would be signed before the emergency board meeting convened Monday evening. That way, the directors could devote their discussion to the best way to conduct an orderly sale of Getty Oil in the ninety-day time period available. Sid Petersen’s long career at the company was finished, he suspected. But it was still quite possible, if the auction plan went forward, that the company would be sold to someone who would require his services as chief executive.
Those faint hopes had been considerably dampened by three o’clock the next afternoon. After straggling to his hotel late Sunday night and sleeping a few hours, Petersen spent the morning conferring with Winokur and Boisi at Dechert Price & Rhoads’ New York offices, on Madison Avenue. As they talked, snow began to fall on Manhattan. They were still waiting to obtain Gordon’s signature on the self-tender, ninety-day auction documents; they had no idea that Gordon was preparing to sign a rather different agreement with Pennzoil that same day. Early in the afternoon, however, they were all summoned to a meeting at Marty Lipton’s offices on Park Avenue. They were told by Marty Siegel that a few things needed to be explained before the emergency Getty Oil board meeting began.
In a conference room at Wachtell, Lipton, Rosen & Katz, they all convened: Petersen and his lawyers and bankers; Lipton and his associate, Patricia Vlahakis; and Gordon’s advisors, Siegel, Cohler, and Woodhouse. Cohler and Siegel did most of the talking. They described the terms of a joint takeover that had been agreed to by Liedtke and Gordon the day before, and they said that a written, signed proposal would be presented to the board that evening.
Petersen and his advisors were stunned by the news. Had Gordon fina
lly won? Had he finally taken Getty Oil away from them?
Cohler announced that apart from the ownership provisions of the four-sevenths, three-sevenths plan, Pennzoil would receive an option to buy 8 million Getty Oil shares. Added to the 24 million shares it had already agreed to acquire from the public and the museum, the option would provide Pennzoil with a way to acquire a total of 32 million shares in the event of a dispute with Gordon during the weeks ahead. Since Gordon already controlled 32 million shares, the partners would be in a deadlock position and neither could take shareholder action without the other. Cohler also told Petersen that he could expect personal lawsuits to be filed if the board took action to block Gordon’s takeover.
Siegel mentioned the price of the deal: $110 per share. Boisi and Winokur pounced on him.
“You know we think that’s inadequate. The board is not going to accept that price. Goldman, Sachs has already said that $120 is the minimum fair price.”
“Well, yesterday, we were all willing to agree to $110 and so we obviously thought it was a fair price,” Siegel countered.
“We never thought that was fair and you know it,” Winokur said.
“Well, Mr. Liedtke is a very tough negotiator.”
“He may well be, but in this situation he’s a buyer and you’re a buyer. And with all due respect to how good a negotiator you are, Marty, it’s hard to expect two buyers to agree on a fair price that the seller wants to sell at,” Winokur insisted.
“We did the best we could,” Siegel said.
“Well, I would feel a heck of a lot better if we had an opportunity to negotiate with Pennzoil directly.”
It was now less than three hours before the board meeting was scheduled to begin at the Inter-Continental Hotel. Winokur, Boisi, and Galant decided that they would walk immediately over to the Waldorf to see if they could meet with the Pennzoil executives and try to persuade them to pay a higher price. When they reached the Waldorf’s elaborately decorated lobby, they called up to Liedtke’s apartment.