by Coll, Steve;
Wasserstein was in a waiting area outside the Texaco board room when the doors opened and McKinley stepped out.
“What should we do now?” McKinley asked.
Wasserstein had no idea what the correct answer was, since McKinley had not told him what the directors had decided. For all he knew, the board had turned down the proposal. So he said nothing and simply followed the chairman into his expansive suite of offices nearby. He sat down in a chair across from McKinley’s desk.
McKinley picked up his telephone and called Lipton. “Marty, our board has approved making a firm proposal with our conditions to you. The way we would like to handle this is Bruce and a team of our people will be arriving at your office to discuss this with you. Have you signed anything yet?”
“No,” Lipton answered.
“I assumed you would not sign anything until you heard my proposal.”
Suddenly, alerted that the deal was on, Wasserstein was ecstatic. He and First Boston were about to make a deal to dwarf all others. McKinley placed a few more calls: one to John Weinberg at Goldman, Sachs, to inform him that Texaco was going to make an offer and would like to meet with Getty Oil’s representatives in Manhattan later that evening; one to Sid Petersen, to say the same thing; and one to Larry Tisch, from whom McKinley hoped to obtain Gordon Getty’s phone number. Gordon was still staying at the Pierre, and Tisch said that he would contact him there to see if he would be willing to receive a call from McKinley. The Texaco chairman said that he, Al DeCrane, and vice-chairman Jim Kinnear (who had been summoned to White Plains from Houston earlier that day) were leaving immediately for Manhattan, about an hour’s drive away. Before the night was over, the future of Getty Oil would be decided, one way or another.
23
Denouement
All day, John McKinley had been worried that if Texaco did not move quickly enough, Marty Lipton and the representatives of Getty Oil management might sign a final agreement with Pennzoil and Gordon before Texaco was able to present its higher offer. As it happened, the concern over this possibility, expressed at regular intervals by Wasserstein and Lipton, was mainly, if not entirely a canard, an attempt to pressure Texaco into action. Although they represented parties on opposite sides of the takeover deal, Wasserstein and Lipton shared a strong desire to have some deal involving Texaco take place, and soon—Lipton because he wanted a higher price for the museum than the $112.50 put up by Pennzoil, and Wasserstein because his fees depended on Texaco’s consummation of a takeover.
The truth was, however, that there was no serious prospect on Thursday that Pennzoil’s final merger documents would be signed by anyone. On Wednesday, there had been no negotiations because the Pennzoil attorneys failed to deliver their drafts until late in the evening. On Thursday, Getty Oil’s lawyers, led by Bart Winokur, responded in kind. Despite numerous phone calls from the panicky Pennzoil lawyers, who were beginning to hear rumors about possible interest in Getty Oil by Texaco, Chevron, and other large companies, Winokur and his team of attorneys declined to meet until six in the evening. The reason, Winokur said, was that he and his colleagues were studying complex legal and financial issues which Pennzoil’s lawyers had inexplicably failed to address in their draft. All afternoon, fearing that Winokur was only filibustering while Goldman, Sachs sought a white knight to take the company away from Pennzoil, Hugh Liedtke’s lawyers pressed for a meeting. They were worried that an outsider might enter the bidding. In California that afternoon, a court hearing had been called by the beneficiaries of Gordon’s family trust—the Georgettes, and the children of J. Paul Jr. and Ronald Getty. Having read in the newspapers about Gordon’s takeover alliance with Pennzoil, the beneficiaries were seeking a temporary restraining order barring Gordon from going ahead with the deal until it was reviewed by his family. Tim Cohler had been dispatched to Los Angeles to argue that the order should not be granted, but the Pennzoil attorneys were afraid that if it was, their final documents might not be signed for days.
Pressed for a meeting on Thursday afternoon, Bart Winokur said he wasn’t ready—over the telephone, he ticked off a list of important issues that were not addressed in Pennzoil’s documents and said that he wanted to draft responses before sitting down for face-to-face negotiations. Particularly, Winokur said he was concerned about a number of complicated issues surrounding the sale of Getty Oil’s ERC insurance subsidiary. Under the complex formula devised at the Inter-Continental Hotel by Marty Lipton, the sale of ERC would determine the final price paid to shareholders—Geoff Boisi had withheld his fairness opinion pending the outcome of negotiations over that formula. Desperate to make some progress, Pennzoil’s lawyers finally suggested that they set aside the ERC problem until later and meet to see if they could reach agreement on the other problems raised by Winokur. A meeting was set for six o’clock at the Paul, Weiss law offices in Midtown. Winokur and the other Getty Oil lawyers agreed to attend.
Patricia Vlahakis, like Winokur, had spent the day in her office on Park Avenue reviewing Pennzoil’s documents and drafting responses for negotiation. She, too, had concerns about a number of tax and legal issues that had not been addressed in Pennzoil’s first draft. Around five-thirty, informed by Pennzoil’s lawyers about the six o’clock meeting at Paul, Weiss, Vlahakis gathered up her things, shut the door to her office, and rode the elevator up to Marty Lipton’s floor. She found her mentor and senior partner in his office and told him that she was leaving for a negotiating session with Pennzoil at Paul, Weiss.
“I don’t want you to go to that meeting,” Lipton responded. “There is a team of people from Texaco on their way down here from White Plains. I need you to stay and participate in the meetings with them this evening.”
Vlahakis had heard reports from Lipton earlier that an outside bid for Getty Oil was possible, but she had not known that a serious offer was imminent. She asked him what she should do about the negotiations with Pennzoil.
“Call them and tell them you’re not coming. See if you can talk with them about some of the points over the phone.”
Vlahakis returned to her office and made the call. Bill Griffith, the Pennzoil attorney she spoke to, said that no one was available to discuss the issues with her by telephone. Vlahakis said that she could not attend the meeting at Paul, Weiss.
By the time Vlahakis returned to Lipton’s floor, the bevy of lawyers, bankers, and executives from Texaco had arrived. After a few moments of mingling and introductions in Lipton’s expansive office, the group, including Lipton, Texaco vice-chairman James Kinnear, and general counsel William Weitzel, sat down for a catered dinner.
“I’ve been authorized by Harold Williams, the museum president, to meet with you,” Lipton began. He handed Kinnear and Weitzel a sheet of paper. William Weitzel was a balding, intense, genial man who had been recruited to Texaco from a career in criminal prosecution in order to upgrade the corporation’s legal department. Befriended early on by McKinley, who lived nearby him in Connecticut, Weitzel advanced quickly and became a member of Texaco’s tight inner circle when his friend and mentor became chairman in 1980. He was ultimately responsible for Texaco’s legal strategy.
The sheet of paper passed out by Lipton contained a list of contract provisions. “These items are absolute necessities for any type of agreement with the museum,” Lipton declared. He went through the list, explained what each item was and why it was necessary. The first question was price—how much was Texaco willing to pay? There followed some technical provisions concerning how the museum would be paid for its shares and whether it would be paid regardless of Texaco’s arrangements with Gordon and the company. Finally, there was an entry that read, “Indemnity—will the museum be fully indemnified against any claims by or through Getty, Pennzoil, and the Sarah C. Getty Trust?”
“What do we need an indemnity for?” Weitzel asked. If it was granted, Texaco would assume all responsibility for any lawsuits against the museum arising from the deal, including its legal fees.
“Th
e museum has had a long history of disagreements and upsets and lawsuits involving the museum shares and Gordon’s shares and the company,” Lipton answered. “There are a lot of bad feelings out there and there is constant litigation. My client needs an indemnity as an essential element for his peace of mind. You don’t have any exposure on this indemnity that I know of, except maybe some legal fees, but I have to have it because when my client finishes making a deal with anybody, he is going to want to have some peace of mind that he’s finally through with all this squabbling. Whether he makes a deal with Texaco or Pennzoil or anybody else, he’s going to require an indemnity.”
Weitzel made no commitment. He was trying to test Lipton, to see which of these points were really “essential terms” and which could be negotiated. And despite his worries about the museum’s “peace of mind,” what Lipton seemed most concerned about was the price Texaco was willing to pay. No matter how Kinnear and Weitzel tried to avoid the subject, Lipton returned to it.
“Are you prepared to give your price?” Lipton wanted to know.
“No, we are not.” Texaco had decided that Gordon should hear the price first—without him, there could be no deal. Gordon, not the museum, was the question mark.
Lipton was angry. “You know, there’s no point in us discussing this unless you are going to give me a price.”
“We’re not. Look, you’ve got like ten or twelve percent of the stock. Gordon Getty has like forty percent. Any price we give you will just become a floor price when we talk with Mr. Getty. So we’re not giving you a price until we see Mr. Getty.”
It was apparent to Weitzel that Lipton was going to try every trick he could think of to learn Texaco’s price. It seemed to Weitzel that Lipton launched into “some theatrics” in order to force them to respond. Lipton would walk out of his office, saying that there was no point in having further discussions, and Weitzel and Kinnear would have to follow him into the hallway and persuade him that they should at least talk about the items on Lipton’s list other than price. And so, pouting and reluctant, Lipton would return to his office, only to bring up the question of price again and storm into the hall. Eventually, Lipton gave up and the meeting concluded.
As soon as Weitzel and Kinnear left to consult with their advisors in the conference room, Bruce Wasserstein came in to visit with Lipton. Lipton asked him if he knew what price Texaco was going to offer. Not so shy as his client, Wasserstein volunteered that Texaco would be offering at least $120 per share, probably more, but that he could not be certain of the exact number. Thus informed, Lipton sought out Wasserstein’s clients and began to lobby them for an offer price of $125 per share. Again and again, Lipton insisted to Weitzel and Kinnear that if Texaco offered anything less than $125, the deal would never go through.
“There’s a real urgency about this,” Lipton said. “There is concern among the Getty Oil directors and advisors that Gordon and Pennzoil will make some type of deal that will end up being less advantageous to the shareholders than what was in the press release. The board therefore feels some pressure to negotiate with Pennzoil. At the same time, they’re really unhappy with the price and they encouraged Goldman, Sachs to look for other bids. You need to move quickly if you want to bid. And if you’ll come up with a price of $125, I’m authorized to enter into an agreement with you right now.”
Despite Lipton’s impressive histrionics, Weitzel resisted. He and Kinnear refused to discuss a final price until after they had met with Gordon.
“Well, Gordon Getty is going to be in bed. If you want to see him, you’d better get over to see him soon,” the Texaco executives were told. Gordon was often asleep before ten, they were informed, and it was already eight-thirty.
Toward that end, Weitzel and Kinnear twice telephoned John McKinley at the Carlyle Hotel on Madison Avenue, where they had dropped the chairman off on their way to Lipton’s office. They wanted to know if he had yet been able to arrange a meeting. The first time, McKinley said that he had gotten in touch with Gordon but that nothing had been arranged because Gordon had to locate and summon all of his advisors to the Pierre Hotel. The second time, McKinley said that a meeting had been set for nine o’clock.
Weitzel and Kinnear stood up and told Lipton that they would see him later, after their critical meeting with Gordon. Some of Texaco’s advisors stayed behind at Lipton’s offices to continue their discussions.
In a car chauffeured by a Texaco driver, Weitzel and Kinnear rode over to the Carlyle. They went up to McKinley’s room, briefly reported on their negotiations with Lipton, and then left together for the Pierre Hotel. They arrived in the ornate lobby precisely at nine, were joined by Wasserstein, and then rode the elevator to Gordon’s floor. Tom Woodhouse of the Lasky firm was in the elevator car as they went up, but none of the Texaco executives knew him, and it wasn’t until all of them knocked on the same door that they were introduced.
With Tim Cohler at the court hearing in California, Gordon’s only advisors that night were Marty Siegel and Tom Woodhouse. Their first session with the Texaco executives lasted about one hour. For the second time in five days, the chairman of a major American oil company had come pilgrim-like to Gordon Getty’s two-room suite at the Pierre in the hope that he might enrich his enterprise through Gordon’s cooperation. The contrast between John McKinley and Hugh Liedtke was vivid, however. Whereas on Sunday, Liedtke had been relaxed, open, and direct, putting Gordon at ease with stories about his early days in the oil patch with Gordon’s father, McKinley seemed reserved and somewhat uncomfortable. He tried to warm Gordon up by talking to him about Texaco’s charitable sponsorship of the Metropolitan Opera’s radio broadcasts. When that conversation ebbed, the Texaco chairman emphasized that he had come with only the most friendly intentions. It was not clear, though, whether the message was getting through to Gordon, even though McKinley believed it was.
“We only want to do something if you want an offer from us and you feel you’re in a position to receive an offer from us,” McKinley said.
“I’d like to receive an offer—a nice, high one,” Gordon answered. “At one price, I’m a buyer. At another price, I’m a seller.”
This was in keeping with the advice of Gordon’s investment banker, Marty Siegel. Siegel had told Gordon that there was a “range of values” for Getty Oil, beginning at the low end at about $110 and topping out at about $130 per share. It was Siegel’s advice, simply stated, that Gordon should buy low and sell high. At $112.50, the Pennzoil price, Gordon was a buyer—he would take control of Getty Oil. At some price closer to the high end of Siegel’s range, Gordon might agree to sell his family trust’s shares.
Several problems kept cropping up during Gordon’s first and somewhat awkward session with McKinley that night. One question was whether Gordon was free to sign any agreement at all because of the temporary restraining order obtained by his relatives late that afternoon in California. (Cohler had telephoned before McKinley’s arrival to say that he had been unable to block the order, that he expected it would be lifted sooner rather than later, but at the moment Gordon could not sign any agreement with anyone.) Similarly, there were questions about the “Dear Hugh” letter Gordon had signed earlier in the week with Pennzoil, wherein he had promised to seek the removal of Getty Oil’s board of directors if it failed to approve the joint takeover with Pennzoil. In answer to questions from McKinley and Weitzel, who knew nothing about the letter, Tom Woodhouse produced a copy for their review. Woodhouse pointed out that before Gordon had signed the letter, he had inserted the phrase “Subject to my fiduciary obligations” before each binding clause, which meant that if Texaco’s offer was high enough, Gordon might have a legal responsibility as trustee of his family fortune to accept Texaco’s money.
“It’s my understanding that you would be free to and indeed should receive any higher offers,” Woodhouse advised Gordon after reviewing the letter with Weitzel.
“That’s my understanding, too,” Gordon replied.
Gordon and McKinley began to fence back and forth, each attempting to get the other to name a price first. Their conversation went on in fits and starts for perhaps half an hour. Gordon was becoming frustrated. In the midst of this sparring, there was a knock on the door and Larry Tisch was ushered into the suite. Tisch had been summoned by Gordon from an uptown restaurant, where he was celebrating a friend’s birthday; the balding financier was still in his tuxedo. Informed of Texaco’s overtures, Tisch began to mediate, encouraging both Gordon and McKinley to identify a fair price.
“The Getty Oil board is feeling very pressured by the Pennzoil tender and I think it’s in the interest of both Gordon and the company to see if there’s a higher price available,” Tisch said.
Still, McKinley would not name his price; he was still attempting to force Gordon to mention a number first. Thus stalemated, someone finally suggested that the two sides caucus separately to see if they could arrive at a solution. Gordon had mentioned earlier that his wife, Ann, was asleep in the bedroom, so McKinley and his Texaco colleagues agreed to retreat to the Pierre’s lobby for their meeting. Around ten o’clock, they left the suite.
When the door was shut behind them, Marty Siegel picked up the telephone and called Marty Lipton at his office. So many times before, in critical situations, Lipton had been able to find the common ground and negotiate a solution.
“We’d like you to come right over to the Pierre,” Siegel said. “There’s been a meeting between Gordon and McKinley and it did not go well. We think it might be helpful if you came over.”