by Coll, Steve;
“From an executive’s view, I would be hard-pressed to vote for a self-tender,” Larry Tisch said. Earlier, when Taubman and Allison had considered supporting the proposal, the idea had seemed a tangible way out of the board’s dilemma. Now, however, when it was clear that there were not enough directors willing to back the proposal, a vote on a self-tender would be only symbolic—a chance, as Medberry put it, to “get on the record” about the $110 takeover proposal being pressed by Gordon and Pennzoil.
Tisch went on to explain his reservations. “First, it would require more money than the company has been able to commit. Second, I don’t know what would happen: Pennzoil might buy enough shares and vote with Gordon Getty and squeeze out the public. That’s not a valid reason to vote for a self-tender—just because the directors are angry at Pennzoil and Gordon Getty.”
Larry Tisch then turned to Gordon. With his hairless head, protruding ears, and commanding gaze, Tisch was an intimidating man. He had come on the Getty Oil board at the request of Gordon and Ann, but he did not need Gordon Getty. He did not want anything from him, except to extract himself from his ill-advised directorship with a minimum of pain and embarrassment.
“There is no question that you may be facing lawsuits if you do this takeover by threat,” Tisch said. “You should discuss this with your attorneys. All of the directors are in an embarrassing position. The way to avoid the problems is to get something more—ten dollars more—so Goldman can say ‘The deal is fair.’ I think you, Mr. Getty, as much or more than any of the others, want this. If someone challenges the transaction, we will say you forced us, Mr. Getty. You might speak to your attorneys about that.”
“I have done nothing unethical,” Gordon replied defiantly.
“This is not ethics,” Tisch said. “You have not given the board the opportunity to seek a fair price.”
“If there is no agreement, the market decides.”
“The market does not decide: you have barred us from the market. I think that is worth your considering, Mr. Getty. A small ten-dollar sweetener. Something to satisfy this board.”
“When I became sole trustee, Getty Oil stock was selling for $50 a share and if I had not been the sole trustee, it still would be,” Gordon answered. In his mind, the debate was not about a ten-dollar sweetener. It was about his own character, his credibility. This was not an unreasonable assessment. Only a stone would not feel the hostility toward Gordon Getty that was rising in the narrow conference room.
“You should go back and bargain,” Tisch urged him.
“This company is not looking for a white knight so that it can protect its management,” Harold Williams said, still arguing for the self-tender and ninety-day auction. “It is management itself that is looking to sell the company.”
“If we do nothing, Pennzoil might come in and get enough shares to put Mr. Getty in control,” Petersen added. “What we need is time.”
“The board is at the mercy of Mr. Getty and Pennzoil,” Tisch agreed. “If the board is not given time, Mr. Getty might get sued.”
“The board might get sued, too,” Henry Wendt said. A few moments later, the SmithKline chairman added, “The only way to tell whether $110 is fair is to place the company on the market. I don’t think a self-tender cripples the company.”
“Pennzoil has been very clever and it’s putting tremendous pressure on the board,” Petersen said.
“This whole thing is an attorney’s dream,” Wendt answered disgustedly. “The board has got to maximize value for small shareholders. I think that either $120 has to be obtained from Pennzoil or else the situation has to be opened up to the market.”
Harold Stuart, the aging Oklahoman who had married into a fortune in Getty stock, now turned on Gordon angrily. “You said that you brought the stock price up from $50. I don’t think you did that at all. When Getty’s stock was at $50, all oil company stocks were at an all-time low. The board and management had a great deal to do with the increase—as well as Pennzoil’s tender offer.”
“You, in effect, have put the company on the block,” chimed in Chauncey Medberry. There was a group of them now—Medberry, Stuart, Wendt, Teets—all beginning to lose their tempers, all directing their outrage at Gordon.
“Gordon is forcing the board by signing the agreement with Pennzoil,” Tisch said. “Without that agreement, the board would approve a self-tender offer for twenty percent at $110, which would give ninety days to solve the problems we’re facing.”
“That arrangement for the opportunity to sell the company has only been discussed,” Gordon replied. “It is not my fault that I didn’t follow Mr. Tisch’s advice on that.”
“How can the company get bids if the trust and Pennzoil own fifty-five percent of the stock between them?” Tisch demanded of Gordon. “No one could buy the company under those circumstances.”
“Is it reasonable to ask Pennzoil to go over $110 per share when a major investment banker—Salomon Brothers, the museum’s banker—has said that $110 is OK?” Gordon asked in reply.
“Getty Oil’s investment bankers have not said that,” Teets answered.
Gordon remained adamant in the face of the directors’ anger. “There is no proposal that should be voted for that I have seen this evening other than the Pennzoil proposal. I think the Pennzoil proposal is more attractive. The directors are responsible to all the shareholders, including large ones like myself.”
“I don’t think that’s true, in that you agreed to buy at $110,” Tisch said. Tisch meant that the directors were responsible to shareholders who were selling their stock, not to those trying to buy the company.
“Gordon is willing to liquidate at $110 and therefore, in effect, he is a buyer—and Goldman said that $110 is an inadequate price,” Bob Miller added.
“Maybe I’m buying, you could say. Maybe I’m standing pat. The Pennzoil deal is best for the minority. I might withdraw my offer and do nothing,” Gordon said.
“If you would withdraw your offer, the board would vote for a self-tender,” Tisch responded.
“I’ve done a lot for the shareholders,” Gordon insisted.
Sid Petersen interrupted this debate. “We’ve got to do something about the Pennzoil tender offer.” That was the problem with doing nothing—Pennzoil’s 20 percent, $100 bid would go forward, and it would be successful.
“I don’t think it’s possible to get the Pennzoil offer increased,” Harold Berg volunteered. “Liedtke told me that if the board doesn’t approve the $110 offer, the deal is off.”
“That might be a negotiating ploy,” Medberry said.
“The board could put the company on the market anytime and wait for the phone to ring,” Gordon said, still defending his refusal to support the self-tender, ninety-day auction plan.
“You need board action to do that,” Wendt replied.
“I don’t think so,” Gordon said.
Petersen returned to his earlier theme: “We have got to act by a week from this coming Tuesday to protect the company from the Pennzoil offer.”
Gordon, however, was not interested in Petersen’s mounting fears. “The board is crazy if it thinks I am buying at $110 a share. I am protecting my position and doing a favor for the shareholders.”
Tisch tried again to persuade him. “Look, Gordon, the board is willing to give the company to you at $110 per share. All it asks is ninety days to beat that price.”
“That’s not what the board is doing, either,” Gordon answered.
“Under the proposal talked about on Saturday, the board would put the trust over fifty percent at the end of ninety days and you can do anything you want if the company isn’t sold for more than $110,” Tisch pressed.
“When that proposal was discussed and considered, it was only negotiations,” Gordon answered. “I did not agree to it.”
“The only difference from the Pennzoil deal is that the company gets a chance to get a better price for the shareholders. All of the directors but you are in favor of
that.”
Gordon said nothing. Someone asked if he was willing to withdraw the consent he signed with Harold Williams in early December. Then it would no longer be necessary to round up 14 votes to adopt the self-tender auction plan.
“I would under certain circumstances, including the reconstitution of the board,” Gordon replied.
“Will you explain what you mean by that?” Medberry asked him.
“I don’t care to.”
“The company has to block the Pennzoil tender offer to get an offer that is better,” Wendt told Gordon.
“If the Pennzoil offer is low, bigger fish will come in,” Gordon answered.
Harold Stuart, for one, could not understand Gordon’s attitude. He had known Gordon for years now, had sat through countless meetings with him, endured his stubborn defiance, his questioning of management, his vaguely articulated quest for maximized values. And yet, Stuart now felt, there was something very peculiar about Gordon’s present refusal to consider the self-tender, ninety-day auction plan now that the board had rejected his joint takeover with Pennzoil. It simply made no sense. Gordon, it seemed to Stuart, had everything to gain by an open auction for Getty Oil, and nothing particularly to lose, apart from his ambition to be chairman of the company, an unlikely prospect at best, in Stuart’s view. Why was he being so intractable? Harold Stuart had a notion, and he turned directly to Gordon: “Do you have any agreement or other arrangements with Pennzoil other than what you’ve told the board about?” he asked.
Gordon paused. He knitted his furry eyebrows. He pursed his lips. He folded his long, bony hands before him. And then he said, “I would have to talk with my advisors about that.”
Someone stepped into the hallway and summoned the mass of lawyers and bankers back into the room. It was now ten minutes before two in the morning. Harold Stuart repeated his inquiry. Did Gordon have some sidebar arrangement with Pennzoil which he had not disclosed to the board?
Tim Cohler said that he would answer that question. From his briefcase he produced a one-page document, which would come to be known by its salutation as the “Dear Hugh” letter. Cohler read the agreement aloud. It was addressed to Pennzoil, and it said, in simple language, that if the Getty Oil directors refused to approve the Pennzoil takeover, Gordon would do everything in his power to have them immediately and summarily fired.
There was a hailstorm of profanity and accusation.
“Gordon, you fucking asshole,” director John Teets said. “I’d like to wring your fucking neck.” The Greyhound chairman did not act on this sudden impulse.
“Very bad form,” Larry Tisch conceded about the man who had named him to Getty Oil’s board. “Very bad form.”
In one corner of the room, Fritz Larkin, the retired Security Pacific banker, turned to Harold Stuart and said simply, “The old man is rolling over in his grave.”
At the far end of the table, Gordon Getty sat impassively. He felt no regret. It was these same directors, after all, who had fomented the lawsuit challenging his right to be sole trustee of the Getty family trust. It was these directors who had treated him so rudely over the years. It was they who had blocked his effort to control the company over the last eighteen months. The snakes were only getting what they deserved.
19
Deal-makers
At that moment of final collapse in Sutton Room II when the directors of Getty Oil began to curse Gordon Getty and his heritage, it was Martin Lipton, the consummate deal-maker, who offered a way out.
While the lawyers and bankers were exiled from the board room, Lipton had been talking again with Arthur Liman and Jim Glanville about a formula that would increase Pennzoil’s takeover offer to $120 a share. At first, Lipton was told that Hugh Liedtke would offer “not a penny more” than $110, but later Glanville reported that he would be speaking about the matter with Pennzoil’s chairman in the morning, and that Pennzoil would be willing to consider a new proposal from Getty Oil’s board at that time. Lipton, Liman, and Glanville proceeded to devise a complex formula, based on the sale of Getty Oil’s ERC insurance subsidiary, to raise Pennzoil’s takeover price to $120. Moments later, when Tim Cohler read the “Dear Hugh” letter to the embattled directors and the board room erupted in volcanic anger, Lipton tried to calm the scene by outlining the new proposal, which might solve everyone’s predicament. The directors turned their attention away from Gordon and began to listen. In his deliberate, articulate manner, the bespectacled Lipton described a new debenture formula that would raise the Pennzoil offer by ten dollars.
“Are there other provisions of the Pennzoil offer presently before the board that would be applicable?” Harold Stuart asked when Lipton was finished. Stuart was referring to the “Memorandum of Agreement” signed by Gordon, Liedtke, and Williams, which the board had earlier voted down.
“Who cares?” Lipton asked.* From the beginning of the meeting, the problem had been price. Now there was a plausible formula to raise the offer to $120. Nothing else mattered, Lipton was saying.
“Goldman could give a fairness opinion on the terms Marty outlined,” Geoff Boisi volunteered. Those were the magic words. For the first time all night, Boisi was willing to write a fairness letter.
“What’s the trust’s view?” Sid Petersen asked Gordon.
“I’ll sleep on it,” he said.
“You can’t do that with the time deadlines we’re facing,” Petersen insisted.
For twenty minutes, they wandered about the narrow conference room, informally discussing what they should do next. There was consensus on one issue: everyone needed to sleep. Finally, just before two-thirty, a vote was called. Gordon said that he would not stand in the way if the board wanted to recommend Lipton’s $120 proposal to Pennzoil. But he made it clear that he was not endorsing the idea and he said that he could not guarantee how he might vote “as a shareholder” in the future. The tally was counted. All of the directors voted in favor of recommending the $120 formula to Pennzoil, except Chauncey Medberry, who voted no as a matter of principle. Medberry indicated that he was too upset by the circumstances of Pennzoil’s alliance with Gordon to recommend an offer to them, despite the $120 price.
With that, Sid Petersen suggested that the emergency meeting of the Getty Oil board of directors be recessed until the following afternoon. By then, Pennzoil would have responded to Lipton’s $120 debenture proposal. The directors would be well rested. The fate of Getty Oil Company might finally be decided.
The weary board members gathered their belongings and began to disperse.
It was sometime after three o’clock that morning when Geoff Boisi and Bart Winokur pushed through the Inter-Continental Hotel’s revolving door and stepped into Manhattan’s chilly, abandoned streets. They walked a short distance together to the Waldorf-Astoria Hotel on Park Avenue, walked through the lobby, and rode the elevator up some thirty floors. They located the room occupied by Jim Glanville, who lived in Connecticut but stayed in Manhattan when a rich deal such as this was in full bloom. Boisi slipped a two-page note, handwritten on yellow legal paper, beneath Glanville’s door.
The note began: “Jim, The attached is the transaction the Getty board approved. After you have had a chance to review this with your client or if you have questions please contact me at the Helmsley Palace or Dechert Price & Rhoads’ office.” Boisi signed his name below two telephone numbers. On the second page, there was a handwritten outline of the terms of Marty Lipton’s new $120 formula. It read in part: “The Getty board has approved the following transaction. PZ [Pennzoil] will withdraw its tender. PZ & Getty will enter into a merger agreement.… PZ will contribute $2.64 billion to the capital of the surviving corp.” That was enough to give Hugh Liedtke the three-sevenths position he had negotiated with Gordon on New Year’s Day. The question remaining was whether Liedtke would bid against himself and raise his price to $120 in order to achieve his goal.
After the note was delivered, Geoff Boisi and Bart Winokur walked from the Waldorf to the
ir respective hotels and went to bed. It had been a long night.
Neither of them, however, could afford to sleep late. They had reached the vortex of a multibillion-dollar hostile takeover, and this was the milieu in which the performance of a merger expert was measured. The romanticization of takeovers, promoted not only by the media but by Wall Street bankers and lawyers, was at its pinnacle that January, 1984. Prominent players such as Boisi, Lipton, and Siegel had developed an acute self-consciousness about the urgent importance of themselves and their profession. Financial reporters tracked their deals like sportswriters covering a pennant race. Triumphs and fiascos alike were chronicled—a single here, a home run there, a strike-out with the bases loaded. Wall Street was at the center of the national, Reagan-era consciousness. Earlier, flying back to New York from London, one of the lawyers involved had talked about who would be cast as Gordon Getty in the movie version of Getty Oil’s travails. That attitude, that giddy sense of self-awareness, had only increased in recent weeks. So much was at stake, the Wall Street advisors felt. So much depended on what they did next.
It was just before seven on Tuesday morning when an exhausted Geoff Boisi arrived at Goldman, Sachs’ stately offices on Broad Street, down from the New York Stock Exchange. The Getty Oil board was not scheduled to reconvene at the Inter-Continental for another six hours. Boisi had a great deal to do before then. He had a lot of phone calls to make.
His first, promptly at seven, was to Jim Glanville at the Waldorf.
“I just wanted to be sure that you found my note under the door,” Boisi said.
“I found it and I was surprised by it,” Glanville replied. “My understanding last night was that the board was going to come back with some changed optics. I thought we were talking about optics. What you’ve asked for here is real money.”
“You bet,” Boisi said.
The $120 formula devised by Lipton was indeed “real money,” in the sense that it would actually be worth $120 on the market. But it was different from the straight debenture proposal discussed earlier on Monday by Liman and Tisch in that it depended on the sale of Getty Oil’s ERC subsidiary. If ERC commanded a high price, as Boisi expected it would, then the Lipton formula would cost Pennzoil less than $120 from its own pocket. But if ERC fetched a modest offer, then Pennzoil would have to pay the full $120.