The Taking of Getty Oil

by Coll, Steve;

  The final press release said: “Getty Oil Company, the J. Paul Getty Museum and Gordon P. Getty, as trustee of the Sarah C. Getty Trust, announced today that they have agreed in principle with Pennzoil to a merger of Getty Oil and a newly-formed entity owned by Pennzoil and the Trustee.

  “In connection with the transaction, the shareholders of Getty Oil, other than Pennzoil and the Trustee, will receive $110 per share cash plus the right to receive a deferred cash consideration in a formula amount. The deferred consideration will be equal to a pro rata share of the net after tax proceeds in excess of $1 billion from the disposition of ERC Corp., the Getty Oil insurance subsidiary, and will be paid upon the disposition. In any event, under the formula each shareholder will receive at least $5 per share within five years.

  “Prior to the merger Pennzoil will contribute approximately $2.6 billion in cash and the trustee and Pennzoil will contribute the Getty Oil shares owned by them to the new entity. Upon execution of a definitive merger agreement, the December 28th, 1983 tender offer by a Pennzoil subsidiary for shares of Getty Oil stock will be withdrawn. Following consummation of the merger the trustee will own four-sevenths of the outstanding common stock of Getty Oil and Pennzoil will own three-sevenths.

  “The trustee and Pennzoil have also agreed in principle that following consummation of the merger they will endeavor in good faith to agree upon a plan for restructuring Getty Oil on or before 12/31/84 and that if they’re unable to reach such an agreement then they will cause a division of the assets of the company.”

  The advisors to Sid Petersen’s management team and to Gordon Getty, as well as Getty Oil general counsel Dave Copley, approved this version of the press release and authorized its issuance. It was the language of an armistice—in the view of both parties, the release accurately described the meaning of the directors’ final 15–1 vote at the Inter-Continental Hotel. The key phrase was “agreement in principle.” Apart from its legal definition or its utility in the insular, specialized world of Wall Street merger-making, there was an irony about the use of “principle” to describe an agreement between two parties whose very lack of moral accord had been the cause of eighteen months of anger and turmoil. By whose principles was there now an agreement between them? The principles of Sid Petersen and Bart Winokur, whose drive to protect the public shareholders and themselves had led them to secretly instigate a family lawsuit against Gordon? Or the principles of Gordon Getty, whose desire to protect his power over the family trust and to increase its already monstrous wealth had caused him to undermine the stability of a decades-old enterprise? Each side believed that its principles, its morality, was superior to the other’s and had behaved accordingly. Now, suddenly, they were relying on an objective definition of motive and intent. And yet they continued to view the destiny of Getty Oil through subjective, fiercely partisan eyes.

  Was the deal done? Had Gordon Getty and Hugh Liedtke won out? Or was the game still on, was final control of the company still in doubt? That depended, obviously, on how one interpreted the phrase “agreement in principle.” If one assumed the perspective of the merger game-player, if one subordinated the objective meaning of language to the rules of the game, then an agreement in principle was no agreement at all. To Geoff Boisi, the Getty Oil banker who had played this game hundreds of times before, an agreement in principle meant simply that nothing was final, that everything was up for grabs. This was not his personal definition; it was a convention of the game he played. In the card game of bridge, for example, one bids for control of a hand through coded declarations that bear no relation to the objective meaning of language. One says, “Two clubs,” when one means, “I have no spades.” Those players at the table familiar with the convention understand. But clearly there are risks attached to the appropriation of language, especially when the conventions of a game are not universally comprehended. Words, finally, convey objective meaning. Throughout the battle for control of Getty Oil, references were constantly made to the “public investor,” and the image conjured was of a common man, a real-estate broker in Omaha, Nebraska, or a car salesman in Indianapolis, Indiana, who invested his family’s hard-earned money in stocks in the hope that he might modestly increase his stake in the world.

  As it happened, that image was largely misleading, since most of the “public” investors in Getty Oil were large institutions—pension funds, mutual funds, other corporations, and so on. These institutions and their managers were game-players, too. But there were plenty of individual, middle-class investors in the company as well; people whose contact with Wall Street was limited to the advice of a small-town stockbroker. To such an investor, armed with a dictionary and reading Getty Oil’s press release on the morning of Wednesday, January 4, the phrase “agreement in principle” would hardly have indicated that everything was up for grabs. It would have suggested, to the contrary, that an agreement had been reached. If he wondered at all about the words “in principle,” and if he was possessed of an exceptionally sophisticated and subtle mind, the investor might have assumed that only the essential, fundamental terms of the deal had yet been negotiated, and that the parties would now bargain in good faith to hammer out the details of a final document. But even that conclusion was far from self-evident. The phrase “in principle” might also refer to the theoretical, moral certitude of the transaction, to the parties’ unyielding determination to conclude a deal. This latter and perfectly plausible interpretation, of course, was precisely the opposite of the Wall Street game-players’ definition. To them, “in principle” was a convention, a signal to the bankers and lawyers on the Street that Getty Oil was still in play.

  Geoff Boisi, therefore, was burdened by no self-doubt when at eight o’clock on Wednesday morning, at the very moment when the press release was being issued to the public, he arrived at Goldman, Sachs’ offices on Broad Street and began to place a new round of telephone calls, searching for someone to step in and buy Getty Oil Company.

  Boisi later described his contacts that morning as “courtesy” calls intended to alert those executives with whom he had discussed Getty Oil on Tuesday that nothing had been finalized by the directors, despite what they might read in the newspapers. He placed his calls first thing in the morning because he wanted to reach the prospective suitors before they saw their papers and were confused by the reports of a 15–1 vote. As it happened, most of the executives he spoke to had already heard the news.

  His conversation with Al DeCrane early that Wednesday morning was typical.

  “What is the status of things?” DeCrane wanted to know.

  “At this point, the board has commented on the price of the Pennzoil offer—the $112.50—but the definitive merger agreement has not been executed and discussions are still going on. There is no binding agreement,” Boisi answered.

  “If someone came in, would that offer be heard by the Getty Oil board?” DeCrane asked.

  “The board has agreed on price, but there are a number of substantive matters that have to be discussed and ultimately reflected in a definitive merger agreement, if indeed they can be agreed on, and then they will have to go back to the board,” Boisi said. “Until you have a signed, definitive agreement, you don’t have anything. The directors of Getty Oil have a fiduciary responsibility to consider a higher offer. If one comes in, they will have to consider it.”

  All through that day and the next, Boisi worked the telephone, reiterating to executives of Chevron, Texaco, and other interested buyers—including, at one point, the government of Saudi Arabia—that nothing was final. Boisi’s view of the fifteen-to-one vote was that it reflected the board’s opinion on the price of $112.50 only, that it did not address other important issues in the deal, such as those contained in the “Memorandum of Agreement” originally signed by Gordon, Liedtke, and Harold Williams. The directors of Getty Oil would welcome an offer that would take the company from the grasp of Gordon Getty and Pennzoil, Boisi said. This view was confirmed, when necessary, by Sidney P
etersen, the chairman of the board himself. At one point, Petersen was called by an investment banker in New York who was jockeying to line up Texaco as a client. The banker wanted to know, once and for all, whether Getty Oil had a firm contract with Pennzoil and Gordon.

  “We do not,” Petersen answered. “The fat lady has not yet sung.”

  And yet there was evidence that even Boisi’s firm, Goldman, Sachs, was confused about the issue. On the same day that Goldman’s senior merger partner, Boisi, was assuring buyers that no deal was done, the firm sent Getty Oil a bill for $6 million, the fee due it under the terms of the Pennzoil takeover.

  Meanwhile, negotiations to produce a final merger agreement with Pennzoil had suddenly stalled. The night before, at the Paul, Weiss offices, it had been agreed by everyone that Pennzoil’s attorneys would write the first draft of a final document and present it to the other lawyers on Wednesday morning. But while Boisi placed his calls from his Broad Street office, the attorneys uptown did nothing. There was nothing they could do—the Pennzoil lawyers had failed to deliver their draft. Morning passed to afternoon, and still there was no word from either Baker & Botts or Paul, Weiss. Patricia Vlahakis, Bart Winokur, and other lawyers for both the company and the museum called several times to find out what was causing the delay. Each time they were told that the draft would be delivered by messenger shortly, and each time they waited in vain. It was not until eight-thirty in the evening, fully twenty-four hours after the board meeting at the Inter-Continental was concluded, that the Pennzoil lawyers finally delivered a draft.

  By the standards of the merger game, this was an unusual delay; ordinarily, the bidding party tried to negotiate a final document as quickly as possible to prevent outsiders from stepping in. Sometimes the final contracts were even prepared in advance. The delay by Pennzoil’s attorneys was never satisfactorily explained. There were some who questioned the experience of Liedtke’s outside attorneys—Baker & Botts and Paul, Weiss, while universally regarded as excellent law firms, were not noted for their merger expertise. Perhaps it was this absence of experience in large-stakes mergers, the firms’ unfamiliarity with the conventions of the game, that led them to take a somewhat lackadaisical view of time. On the other hand, the document they were drafting was highly technical and complex, and a great deal depended on the accuracy of its language. Even by the lightning clock of Wall Street, twenty-four hours was hardly an eternity.

  Then, too, Hugh Liedtke and the other leading executives of Pennzoil seemed to believe that their deal with Gordon, the company, and the museum was essentially concluded, that what remained was merely the fine print of a formal document. On Wednesday, while his lawyers struggled to write that document, Liedtke, in his Waldorf apartment, accepted congratulatory phone calls from executives at Exxon and Amoco. In the afternoon, he met with Gordon at the Pierre to discuss their new partnership. Gordon suggested that the two of them fly to California together and “walk down the halls of the building” to introduce themselves to the employees. Gordon wanted to assure the employees that their futures were secure and that the company would be moving positively ahead.

  “I think that’s a good idea and I’d like to do it as soon as possible,” Liedtke told Gordon. “But I think the decent thing to do would be to let Mr. Petersen have time to get his things together and get out of there. He’s in the process, as I understand it, of doing that, so it seems to me that to wait two or three days would be the thing to do under the circumstances, rather than embarrass him further.”

  Indeed, Petersen had flown back to California the night before. His future with Getty Oil was now being measured in days. Apart from Petersen, Liedtke and Gordon discussed other top company executives, that afternoon, and they listed who they might like to keep and who they would fire for lack of trustworthiness.

  For Gordon Getty particularly, it was a sweet moment. In his Pierre Hotel suite overlooking Central Park, as a cold mist fell on the city, the Getty scion contemplated the spoils of his victory. Maligned for so many years by his family and by the company’s shifting management, Gordon finally was empowered over all of them. Naïvely, he believed that Getty Oil Company belonged to him.

  21

  A “Manly” Place

  For perfectly understandable reasons, the great majority of Americans in the early 1980s regarded the nation’s large oil companies as the more or less interchangeable parts of a monolithic, nearly omnipotent enterprise known colloquially as Big Oil. To the average consumer of gasoline and motor oil, the differences between Exxon, Texaco, Chevron, Gulf, Shell, Mobil, and the rest seemed largely cosmetic—a matter merely of corporate logos, advertising jingles, and celebrity spokesmen. Gordon Getty was typical: when Pennzoil announced its tender offer in December 1983, all Gordon knew about the company was that it employed a legendary golfer, Arnold Palmer, as its television pitchman. The public’s perception was rooted not so much in ignorance as in experience. At the gas pump, there were in fact no appreciable differences among the large oil companies. Their prices rose and fell more or less in tandem, their products were of similar type and quality, and their services were virtually identical. When change visited the industry—when prices rose or fell sharply because of OPEC, or when gasoline retailers suddenly eschewed traditional services in an effort to hold prices down—the large companies seemed to respond as if they were one. Indeed, many among the public believed that behind their Madison Avenue-designed façades, the big international concerns were a single enterprise, a conspiratorial oligopoly. In some areas of the oil business, particularly the refining and domestic distribution of oil products, federal and state government investigators had brought lawsuits alleging that Big Oil was, in fact, more collusive than competitive. The lawsuits failed to make their case. But while the Seven Sisters and their lesser siblings might be accused of cooperation on “macro” issues such as pricing and distribution, their control over the worldwide industry was profoundly undermined by OPEC, and in the 1980s they were fighting bitterly among themselves for control of declining domestic reserves.

  In this contest for survival in a shrinking industry, played out largely beyond the public’s view, the individual character of the large companies was clearly delineated. There were the shrewd aggressors, such as Boone Pickens’ Mesa Petroleum and Hugh Liedtke’s Pennzoil. There were family concerns like Getty Oil, weakened by generational change and by ill-advised diversification programs. There were the giant descendants of the Rockefeller Standard Trust, companies such as Exxon and Chevron that were untouchable in the raging takeover wars because of their size and relative efficiency. And then there was Texaco, the third-largest oil corporation in the country, long regarded as an aloof outsider to the oil fraternity—and a company which decided, on Wednesday, January 4, in the aftermath of Geoff Boisi’s telephone call to president Al DeCrane, that it might like to remake its image.

  If Gordon Getty had been asked that Wednesday what he knew about Texaco, he might have answered that his impressions of the company were derived mainly from Bob Hope, who for years had stood before the “Texaco Star” on television, relentlessly promoting its products and services. To the public, Texaco was one of the most visible of the large oil companies, since its principal strength, relative to its competitors, was its ability to sell gasoline. Texaco had for years been considered a leader in the “refining and marketing” or “downstream” side of the oil business, which was generally given short shrift by the other oil giants. With its modern refineries, omnipresent gas stations, and aggressive advertising, Texaco had made significant gains in this least profitable side of the oil business. Like the other Seven Sisters, Texaco’s overall success rested on its ability to find and develop vast oil and natural gas reserves around the world, but to the public and even within the industry, its identity derived mainly from the sale of gasoline to consumers.

  It was an unusually closed and autocratic company, dogged in the oil patch by a reputation for imperiousness, parsimony, and reactionary man
agement. Texaco, as one financial journalist put it, was “the company that the rest of the industry loved to hate.” It had been founded in 1902 at Spindletop, the great Texas gusher, and developed quickly into one of the world’s leading oil producers, managing all the while to remain independent of the Standard Oil empire that swallowed so many growing companies. From the beginning, Texaco, known originally as the Texas Company, was torn by struggling factions in the oil patch and on Wall Street. The original partners were Joe “Buckskin” Cullinan, a Texas oilman, and Arnold Schlaet, a New York financier. As the company grew rich, the two battled for control; when the New Yorkers finally won and moved the company’s headquarters to Manhattan, Cullinan raised a skull-and-crossbones flag above the company’s Houston offices. But the gesture was to no avail. Over the next fifty years, Texaco was run by a succession of authoritarian chief executives who hoarded power tightly in New York and routed every decision through the company’s Chrysler Building executive offices. Most prominent among them was the appropriately named Augustus C. Long, who held the chairman’s title during the 1950s and 1960s, and who came to personify Texaco’s despotic reputation and its remoteness from the fraternal brotherhood of the Texas oil business. Long’s motto, they said in Texas, was “To hell with everybody else.”

  Despite the shocks caused by OPEC and despite the looming crises of declining oil reserves and Wall Street-instigated takeovers, little had changed at Texaco by 1980, when the regime of John K. McKinley came to power. The company’s headquarters had been moved from Manhattan to the affluent suburb of White Plains, New York, where it was established on a sprawling, fortresslike corporate estate. McKinley himself reflected Texaco’s enduring imperial culture. A tall, severe-looking man with thin lips, coal-black eyebrows, and large, protruding ears, he projected power and steely rationality. Some of his subordinates feared his rebukes, which were frequent and direct, and to them McKinley seemed like a cold, utilitarian schoolmaster sprung from the pages of Charles Dickens. In keeping with Texaco tradition, only a small handful of top executives enjoyed McKinley’s confidences: Al DeCrane, the former Marine who became president when McKinley became chairman and chief executive; and James Kinnear, a Naval Academy graduate with extensive oil operations experience and, compared to his colleagues, an unusually approachable personality. Within the company and without, this group, known as “the triumvirate,” was regarded by many as a kind of Politburo, with McKinley unquestionably in the role of premier. And though McKinley tried to decentralize some aspects of Texaco’s operations, encouraging his division presidents to make their own decisions, he was unwilling or unable to shake off the customs of his company, which held that a chairman and chief executive should rule his corporate empire with an iron fist.