by Coll, Steve;
“The man for you to talk to is Mr. Glanville,” the Getty Oil advisors were told.
So they called Pennzoil general counsel Perry Barber’s suite, where Glanville was stationed, and asked for an audience. Glanville called over to Liedtke, received permission, and then agreed to meet.
“We have no problem dealing with Pennzoil,” one of the Getty Oil advisors said when they arrived at Barber’s Waldorf suite. “Our only concern is that we obtain a fair price. It’s clear from what we heard about the agreement that Pennzoil’s interest in this matter is in getting assets, oil reserves, and we’re prepared, on behalf of Getty Oil management, to discuss and negotiate a transaction where you would acquire the assets you’re interested in. But we would want to do that at a fair price.”
Glanville and Barber made it clear that they were in no mood to deal with the emissaries from Getty Oil management. “We’ve had discussions with Gordon Getty, we’re satisfied with our arrangements, and we don’t see any productive purpose in negotiating with you.”
Winokur, Boisi, and Galant tried to convince them that there was no such thing as a firm deal where Gordon Getty was involved. They briefly enumerated all of the times over the past year when they, too, thought they had made a deal with Gordon only to find that Gordon had changed his mind twenty-four hours later. They tried to impress on Pennzoil’s representatives the importance of negotiating with Getty Oil management, which would not change its mind or its mood once an agreement was reached.
“Besides, we don’t believe the board of directors will approve a $110 price. Goldman, Sachs has done valuation studies that indicate the company is worth far more than $110. The directors will not approve such a transaction.”
“We have made our deal with Gordon Getty and we think the board of directors will come around to our point of view,” the Pennzoil advisors countered. They did not mention, of course, the letter Gordon had agreed to sign declaring that he would try to fire the board if it did not accept his takeover approval.
The discussion began to go around in circles; Glanville and Barber remained uninterested in negotiation. After less than thirty minutes, Boisi, Winokur, and Galant took their leave, discouraged. Pennzoil was sticking to its guns—that was a metaphor employed frequently by the Getty Oil advisors. Pennzoil had a gun at their heads, they liked to say. The point was, Hugh Liedtke would not abandon his alliance with Gordon.
By five o’clock that Monday, darkness had fallen on Manhattan; traces of the morning’s snow still lay on the sidewalks. Winokur, Boisi, and Galant returned to the Dechert Price offices on Madison Avenue and reported to Sid Petersen the failure of their overture to Pennzoil. Getty Oil directors were beginning to arrive from around the country—Wendt from Philadelphia, Medberry from Los Angeles, Teets from Phoenix. Some of them dropped by Dechert Price & Rhoads, where they learned the details of Gordon Getty’s latest and most audacious bid for control of their company. An angry mood began to settle in. The emergency board meeting would be convening in less than an hour. Somehow, Gordon had to be stopped. Somehow, in the next few hours, eighteen months of bitter warring at Getty Oil Company had to be ended. On that chilly evening, it did not seem that either side was willing to go peacefully.
* There is no serious disagreement that this “Lipton accepts” conversation took place, but there is some dispute about when it occurred and what it meant. Liman and the Pennzoil executives contend the phone calls took place on the night of January 1, after their meeting with Gordon. Lipton insists that it was not until the next day that he accepted, after he received a “fairness opinion” from Salomon Brothers on the $110 price and after Harold Williams had arrived in New York for the Getty Oil board meeting. Whether the conversations occurred Sunday night or Monday afternoon has no bearing on their substance. More important is the disagreement over what the conversations meant. Lipton contends that he did not really “accept” anything, that he was merely saying the museum would help Pennzoil and Gordon present the $110, four-sevenths, three-sevenths proposal to the Getty Oil board of directors at their emergency meeting on January 2. Subsequent events make clear that this was what Lipton intended to do; whether it was what he said he would do is still in dispute.
18
After Midnight
By all accounts, the Getty Oil board meeting which began that Monday evening in Manhattan was unlike any in the company’s long and sordid history; indeed, those who attended said later it was unlike anything they had heard described in their careers in corporate governance. The meeting would later be intricately dissected by lawyers, judges, and jurors. It would be difficult for those outside advocates and arbiters to comprehend the swirling anger and confusion which pervaded the Inter-Continental Hotel that night and well into the following day. So much had passed between the participants before the meeting began—an indelible, bitter poison had seeped into their relations. Gordon Getty’s long, sometimes irrational bid for control of the company; the attempt by Sid Petersen and his advisors to instigate a family lawsuit against Gordon; the increasingly cantankerous negotiations between the plethora of lawyers and investment bankers; the shifting role of Harold Williams and the museum—all of this had infected the executives, directors, and advisors who gathered in Sutton Room II on the third floor of the Inter-Continental Hotel. It was like a fever. In the hours ahead, the eminent industrial leaders struggling for final control of Getty Oil’s rich reserves would seem torn by two competing instincts. On the one hand, they were professionals, trained in judicious caution and deeply concerned about their reputations. Somehow, they had to do the right thing, the proper and legal thing. But on the other hand, they were only human beings—tired, angry, vindictive, even childish. Judging by what they said to each other, there were times at the Inter-Continental when this reputable elite of American finance might have liked to physically attack one another, to settle their disputes by wrestling vigorously on the meeting room floor. Perhaps, in the end, that would have been the best solution.
What everyone remembered about the setting was its cramped size. After the Pennzoil tender offer, there had been insufficient time to make more luxurious arrangements for the Getty Oil board’s emergency meeting. The meeting room booked at the Inter-Continental in midtown was stately enough; there were red tasseled drapes, walnut-stained paneling, gilded mirrors, and Edwardian chairs surrounding the oblong table. But the room was airless and narrow. There were thirty of them crammed inside by 6 P.M., when the meeting began. Sid Petersen, the chairman, was at the center of the table. To his left were his advisors: Winokur, Boisi, Galant, and half a dozen other Wall Street lawyers and bankers. At the same end of the table was the museum’s contingent, led by Harold Williams and Marty Lipton. On the opposite side, appropriately, sat Gordon Getty, Tim Cohler, Marty Siegel, and Tom Woodhouse. The Getty Oil directors were interspersed among them. There were not enough places at the table, so many of the advisors sat in chairs pushed against the walls; they would sometimes lean forward to whisper in the ears of their principals. As time wore on, the formality of these arrangements broke down: whispers turned to shouts; the directors stood and wandered about; informal caucuses gathered in corners and outside in the hotel hallways. Through it all, Dave Copley, Getty Oil’s general counsel, sat stoically near the center of the table with a pen and a green writing tablet, scribbling furiously to record what was said.
There was confusion from the first moment. At Marty Lipton’s offices that afternoon, Tim Cohler had said that the deal signed between Gordon, the museum, and Pennzoil to take control of Getty Oil would be presented to the board at their emergency meeting. But when the meeting began, a written proposal had not yet been delivered for presentation. The delay was a result of continuing negotiations with the museum: Marty Lipton insisted that before Williams would sign any final agreement with Gordon and Pennzoil, changes had to be made in the wording so it would be clear the deal was subject to the approval of the Getty Oil board. Lipton wrote the changes on the document by hand
and then passed it to Williams at the board table, where he signed it. Lipton’s changes provided that if the takeover agreement was not approved by the board, the deal would not be binding.
While they waited for copies of this new agreement, Geoff Boisi delivered a long monologue to the directors about the provisions of Pennzoil’s 20 percent tender offer—despite Liedtke’s new takeover deal with Gordon, that offer was still outstanding, and the Getty Oil board was legally required to respond on behalf of its public shareholders. If they did nothing, Boisi told the directors, Pennzoil would soon own 20 percent of the company. What was more, he said, “It is Goldman’s judgment that the offer of $100 per share is grossly inadequate.” The implication was clear: in Boisi’s opinion, if the board allowed Pennzoil’s tender to go through, it would be permitting Hugh Liedtke to steal a large piece of Getty Oil. During their frantic telephone conversations with Petersen the previous week, the directors had assured Getty Oil’s chairman that they would do what they could to prevent Liedtke from succeeding.
When Boisi was finished, Bart Winokur reviewed the self-tender, ninety-day auction negotiations that had taken place between himself, Boisi, Lipton, and Gordon’s advisors. Winokur told the board that this deal, which Gordon had now apparently rejected in favor of a takeover with Pennzoil, would “permit the orderly disposal of the company at the highest possible price.” Winokur said pointedly: “It’s my understanding that we have arrived at an agreement to these terms. Today, however, I have come to understand that Mr. Getty and his trust will not agree to such an arrangement.”
Harold Williams intervened. “The museum is ready to go ahead with that plan. Is it correct, Gordon, that you will not proceed on that basis?”
All eyes turned to the Getty scion. Most of the directors had heard about his deal with Hugh Liedtke, but they had not yet seen it. Perhaps Gordon was still keeping an open mind. Perhaps he would be willing to consider an auction sale of Getty Oil Company.
“Yes, it is correct that I will not proceed,” Gordon said. “There is a better proposal available for all shareholders.” He was referring, of course, to his own plan to finally gain control of the family business.
“Well, then why don’t you or your advisors describe this new proposal that’s been made by Pennzoil?” Petersen asked.
Before Gordon or anyone else could respond, however, Marty Lipton jumped in. “Actually,” he said, “the museum has just signed the new proposal by Pennzoil. But the museum will not be bound by the proposal unless the board approves it.”
For the beleaguered Petersen, this was a most demoralizing development. He had not known that Williams and Lipton were now allied with Gordon and Hugh Liedtke. Harold Williams continued to confound the Getty Oil chairman. After all the museum had been through with Gordon, why would it now join with him against Getty Oil management?
“Look, the museum is a nonprofit, eleemosynary institution,” Williams explained to the angry, befuddled directors. “We have to protect our funding. At $110 per share or better, we’re a seller. I hope the company and the trust can reach an agreement so that the company can take the action that is best for all shareholders. The museum wants all shareholders treated equally. We signed the new Pennzoil proposal so that it would be considered by the board—if the proposal isn’t approved, the museum will not be bound by my signature. I think, however, that the proposal is a reasonable approach and the museum is prepared to support it.”
“Given this new development, I think we should break for fifteen minutes so the company’s advisors can discuss it,” Petersen responded.
Winokur, Boisi, Petersen, and some of the other Getty Oil lawyers and bankers stepped out of Sutton Room II and gathered in a nearby conference room. If the museum’s position was that a $110 takeover by Gordon and Pennzoil constituted “a reasonable approach,” then the Getty Oil directors were now under tremendous pressure. It was no longer merely the erratic Gordon who backed the takeover deal; now the proposal had the support of Marty Lipton’s considerable reputation.
“What problems do you see with Pennzoil’s proposal other than price?” Sid Petersen asked his advisors. It was no longer a question of Petersen protecting his job—they had to be sure now that whatever transpired, the directors could defend their actions during the inevitable lawsuits that would follow a change in control at Getty Oil.
“In our view, there are a whole series of problems besides price,” Winokur volunteered. He ticked off three or four: that despite its apparent agreement with Gordon, Pennzoil was unwilling to drop its 20 percent tender offer immediately; that the agreement apparently called for the company to buy the museum’s shares, which immediately would alter the balance of power at Getty Oil by removing the museum from its “swing” position; that Pennzoil had an option for 8 million shares exercisable at any time; that there were a lot of other complex issues that had not even been discussed.
“Since there are all these complex issues that will require extensive negotiation with Pennzoil, rather than dealing with these at the board meeting, when we get back, we think you should see whether the directors are willing to let Gordon and Pennzoil take the company private, and also the threshold issue of price—whether the board will approve a deal at $110 per share,” Winokur urged.
Petersen agreed that this was the only sensible course. A few minutes later, at five before seven, he reconvened the directors in Sutton Room II.
“I’d like to suggest that before we move on to this new Pennzoil proposal, the board should consider dealing with the $100 tender offer,” the chairman began.
Retired Bank of America chairman Chauncey Medberry, who would later describe his state of mind at the meeting as one of near apoplexy, responded: “I move that the board recommend against Pennzoil’s $100 tender offer for twenty percent of the shares.” Harold Stuart seconded the motion.
A vote was called: the verdict was unanimous. Pennzoil’s $100 offer was rejected. Even Gordon joined the directors in voting against the tender offer. After all, it was Gordon’s banker, Marty Siegel, who had managed the day before to persuade a reluctant Hugh Liedtke to raise the price of their joint takeover to $110. To Gordon, Pennzoil’s original $100 offer was no longer relevant.
When the vote was recorded, Tim Cohler passed out the new takeover proposal. It was signed by Gordon, Hugh Liedtke, and Harold Williams, though next to Williams’ signature appeared Marty Lipton’s handwritten caveat that the museum’s signature was for purposes of presentation to the board only. The document was titled “Memorandum of Agreement.” Four pages long, single-spaced, it described the terms of the four-sevenths, three-sevenths takeover formula agreed to at the Pierre on New Year’s Day by Gordon and Hugh Liedtke. In the third numbered paragraph, the agreement provided that the museum would sell all of its shares to Getty Oil for $110 per share “subject to adjustment before or after closing in the event of any increase in the offer price.” In the sixth and final numbered paragraph, the document read, “This Plan is subject to approval by the Board of Directors of the Company at the meeting of the Board being held January 2, 1984. Upon such approval, the Company shall execute three or more counterparts of the ‘Joinder by the Company’ attached to the Plan and deliver one such counterpart to each of the Trustee, the Museum, and Pennzoil.”
Marty Siegel read the document aloud to the directors. When he was finished, Harold Stuart asked, “Does this require approval by fourteen board members?”
“That depends on whether the consent agreement signed by Mr. Getty and Mr. Williams in December is still in effect,” Bart Winokur answered. “If it is, the answer is yes. If it isn’t, the answer is no.”
“I think we should break again so that the directors can read the new proposal,” Sid Petersen said. “Before we do that, are there any questions the directors would like to ask?”
“I have a question for Goldman, Sachs,” director Henry Wendt responded. “What’s the adequacy of the $110 price?”
This was the heart of the
matter, so far as the Getty Oil board was concerned. If Goldman, Sachs, their investment banker, would provide a “fairness opinion” stating that in the firm’s expert opinion $110 was an adequate selling price for all the company’s shareholders, then the directors would be well protected from any lawsuits arising from the deal. If Goldman would not provide such a fairness opinion, then the directors would be in a very difficult position. If they wanted to approve the deal, they would have to defy their own expert advisor’s opinion.
“In our opinion, the $110 price is inadequate,” Geoff Boisi answered. “Given time and the indications of interest by others in acquiring the company that we’ve already received, and also given our own study of the value of the company’s assets, we cannot provide a fairness letter at the $110 level.”
As Marty Siegel listened to Boisi, he was struck by the Goldman banker’s predicament. A “fairness opinion” was just that—only an opinion. The easiest thing for a banker in Boisi’s position to do would be to simply declare that $110 was fair and be done with it. The financial wizards down at Goldman’s Wall Street offices could certainly come up with appropriate numbers to justify that opinion. Despite Goldman’s indications the previous summer, during the LBO takeover and stock buy-back negotiations, that $120 was the minimum value of Getty Oil’s stock, the firm had also said that the “range” of values for Getty Oil began at $105 per share and rose perhaps as high as $140 or $150. Thus, it would not be totally unreasonable for Boisi to declare that $110 was a fair price. But the banker refused to do it. Despite all of the pressure now faced by the Getty Oil directors, Boisi was insisting that if Gordon and Pennzoil wanted to take the company, they had to pay a higher price. There were two ways to view Boisi’s stubborn insistence that $110 was not a fair price. Perhaps, as Boisi himself insisted, it was simply a matter of integrity; Goldman had a reputation to look out for, and its bankers had to be true to their beliefs, no matter how sticky the consequences. But there was also the undeniable issue of Goldman’s financial motives as Getty Oil’s principal broker. Because of the way Goldman’s retainer deal was structured, if the Pennzoil takeover went through, Goldman, Sachs would earn about $9 million in fees. But if a buyer for the entire company could be found at a higher price, then Boisi might easily double his take to $18 million.