by Coll, Steve;
While Texaco’s triumvirate—McKinley, DeCrane, and Kinnear—shuttled back and forth between Manhattan and White Plains, negotiations proceeded largely without complication throughout the weekend. McKinley and Petersen, the two chief executives, spoke at length about severance pay for all of those Getty Oil employees who would inevitably be considered “redundant” by Texaco once the merger was completed. At the Pierre, Gordon and his attorneys spent much of their time negotiating with the rest of Gordon’s family and their lawyers, trying to persuade them that Texaco’s offer was a good one, and that there was no choice but to accept it. Late Friday, the California judge before whom the Georgettes and other beneficiaries had brought their complaints about Gordon ruled that if everyone in the family could come to an agreement, Gordon was free to sign with Texaco. After hour upon hour of long-distance conversations, including one between Gordon and his brother J. Paul Jr. in London, the family at last acceded to the deal in the early morning hours of Sunday. Gordon signed the final documents, which in language and intent closely mirrored those negotiated by Marty Lipton, and the deal was done. He, too, had an indemnity against future lawsuits, as did all of the executives, directors, and representatives of Getty Oil Company. Where once they had been bitterly opposed, suddenly Gordon and Sid Petersen shared the same interests—they both wanted to be protected by Texaco.
For each of them, a long and consequential battle was finished. Sid Petersen’s career was over. He would float softly into early retirement in Los Angeles, jostled gently by the ropes of his golden parachute. Similarly, Gordon would retreat to the luxurious isolation of his social and musical worlds in San Francisco and New York. The Broadway mansion was as comfortable as ever. Ann was busy shopping for an apartment in New York. Life would go on. In fact, since under the terms of Texaco’s takeover the value of Gordon’s family trust would be converted to just over $4 billion in cash, and since Gordon’s yearly share of the interest from that sum would rise from about $30 million to more than $100 million, life would go on rather nicely. The lawsuit filed against him by his nephews and nieces over the issue of his sole trusteeship remained. But with so much cash now in the family’s possession, there was no reason to believe that the problems could not be solved. There was enough money to go around.
So, too, for the advisors, the Wall Street game-players for whom the Texaco takeover represented a summit of achievement. In the era of big deals, it was the biggest deal ever. Ten billion dollars. The amount just rolled off an investment banker’s tongue, with the emphasis placed on the hard consonant sound of “b” as in “billion.” For Geoff Boisi’s efforts, Goldman, Sachs earned a record $18.3 million in fees. Marty Siegel made some $15 million for Kidder, Peabody. Salomon Brothers, Marty Lipton’s banker, earned about $4 million. And the boys from First Boston, Bruce Wasserstein and Joe Perella, managed to take home approximately $10 million for seventy-nine hours of work, or just over $126,582 per hour.
“You can consider the fees in this deal as tips,” Marty Siegel quipped to the newspapers.
But by Sunday afternoon, when the papers were all signed and the principals were immersed in their rituals of congratulation, Hugh Liedtke was still stiffed. He had not a penny. He had no barrels of oil. And he was very angry about it.
It was not clear afterward who had initiated the effort, but early the following week an attempt was made to placate Pennzoil’s chairman, who had come to resemble an irate bulldog in both spirit and appearance. Liedtke had spent the weekend in Manhattan, watching football in his Waldorf apartment, and brooding. He was too mad to return to Houston. Finally, he received a call from Jim Glanville, his investment banker from Lazard Frères, who was embarrassed about the way things had turned out—Lazard was the only major Wall Street firm involved in the deal to walk away empty-handed. When he telephoned, Glanville reminded Liedtke that he was close to the McKinley family; they were neighbors in affluent suburban Connecticut. McKinley had telephoned, Glanville said, and the banker wanted permission to return the call. Liedtke said that he could, but that he should say very little about Pennzoil’s plans and strategies. If he met with Texaco’s chief executive, Glanville should simply listen.
They met first on Sunday evening at McKinley’s home. Glanville arrived with his wife, then sequestered himself with the Texaco chairman. They talked briefly.
“Texaco bears no hostility toward Lazard or Pennzoil,” McKinley emphasized.
“We’re all big boys,” Glanville replied.
The two friends talked about Pennzoil’s complaints and about the regulatory and antitrust hurdles Texaco had yet to overcome in Washington before its deal could be formally closed. Glanville said that unlike Texaco, an integrated oil giant, Pennzoil had no significant antitrust problems, and moreover, because of Liedtke’s personal connections and his company’s history, Pennzoil wielded great influence in Washington. If Texaco would consider some kind of cooperative venture, Pennzoil’s political power might be very helpful, Glanville said. After discussing several other topics, McKinley indicated that he might like to meet with Liedtke to see if he could smooth any ruffled feathers. Glanville said that he would see what he could do.
After phone calls back and forth, a date was set for Wednesday, January 11, in Washington D.C. A suite was rented at the historical Hay-Adams Hotel, across from the White House. Liedtke asked two of his executives to fly up from Houston; McKinley also brought along a pair of aides to the meeting. On the plane ride from Houston, Baine Kerr, the Pennzoil president, wrote out a proposal on a single sheet of paper. His idea for a compromise with McKinley was simple. Pennzoil had been prepared to buy three-sevenths of Getty Oil for $112.50 per share. Now the price had gone up to $125. Pennzoil would put up the same amount of cash it had originally offered, only now, at the new price, it could afford only about three-eighths of Getty Oil. Under Kerr’s proposal, Texaco would agree to sell three-eighths of Getty to Pennzoil at $125 per share.
“In my view, it is much better for Texaco and Pennzoil to look for ways to work together than it is to look for ways to disagree,” McKinley said when the meeting began. “We can think of a number of ways in which Texaco could be helpful to Pennzoil. One way might be for us to sell Pennzoil some of our ownership in the Hueso field on favorable terms.”
The Hueso field was an oil reserve in which Texaco and Pennzoil jointly participated.
“If you’re not interested in that,” McKinley continued, “there might be other ways in which Texaco could be helpful to Pennzoil.”
Sitting across the room, Hugh Liedtke was unimpressed. His flaccid face was creased in concentration. Now he leaned forward and spoke his mind to the chairman of Texaco.
“Hueso is the Spanish word for bone,” Liedtke said. “Pennzoil is not interested in being thrown a bone. The only thing that we are interested in is some approach that would permit us to have the benefit of our bargain, which was an ownership interest in Getty Oil.”
Liedtke asked Baine Kerr to distribute copies of his handwritten proposal drawn up on the plane the day before.
“I don’t think Texaco would be interested in doing anything like this,” McKinley said when he had perused the document. It was out of the question—Liedtke was asking for the moon. McKinley urged him to “seriously consider” his offer to be helpful to Pennzoil in some reasonable way. And with that the meeting ended. McKinley and his executives flew back to their corporate estate at White Plains; Liedtke went home to Houston on a Pennzoil jet.
So the issue was joined. John McKinley, the “manly” leader of the nation’s third-largest oil corporation, believed that he had done nothing wrong, that he owed Pennzoil nothing. Indeed, he was already being lionized in the national business press for having “outfoxed” Gordon Getty and for rescuing Texaco from its years of corporate drift brought on by declining reserves. Suddenly, Texaco was an aggressive, vital, expanding oil giant, no longer the Seven Sisters’ mean-spirited spinster. For his part, J. Hugh Liedtke was badly stung. For all his suc
cesses in the oil business, for all his financial innovations and takeovers and spin-offs—for all of Pennzoil’s spectacular growth—he had fallen short in the one deal that would have put him over the top. For Hugh Liedtke, there could never be another deal like Getty Oil again. The company was so rich, and so divided against itself—it had been a once-in-a-lifetime opportunity. Now it was gone.
Hugh Liedtke had two choices.
On the one hand, he could learn to accept defeat. He could return to Houston, to the management of his business and to the preparations for his retirement. There was his family—the companionship of his wife, the antics of their friends, the grandchildren everywhere. There surely was plenty of money. More and more, there would be time for cruises in the Caribbean, fishing trips to the ranch in Arkansas, vacations in Europe.
On the other hand, Hugh Liedtke could stew in his own juices. He could become more and more angry over the loss of Getty Oil to Texaco. He could become obsessed. He could become determined to take revenge on all of those who had done him wrong: Texaco, Marty Lipton and the museum, Getty Oil management, the investment bankers, even Gordon Getty, his former partner. He could try to make them pay.
Those who knew Hugh Liedtke well understood which course he had to follow.
PART FOUR
A JURY OF THEIR PEERS
25
Sore Back Lawyer
Houston, Texas, is a vertical city, a monolith with a sprawling, dirty base. From the air, its disordered expanse of freeways, warehouses, barrios, and suburbs seems to flow in tributaries to the center, feeding downtown’s great clump of bare, shining skyscrapers. The modernity of this downtown skyline—its progressive architecture, its dizzying heights, its network of subterranean tunnels linking shops and offices—is a source of pride for the city’s boosters. To them, the skyline is a symbol of Houston’s passage from a steamy, backwater frontier town along the bayou to a climate-controlled, cosmopolitan capital of the New South. But the city’s gleaming architecture is also suggestive of a second transformation: a consolidation of power and wealth. Stoked by the boom in oil and gas prices during the 1970s, Houston’s downtown establishment erected monuments to itself as much as to a new civic image. Long a close-knit fraternity, the downtown business and political leaders grew in the direction of their city: upward into the azure Texas sky.
More than in most American cities, Houston’s downtown establishment was dominated by its large law firms. It was a cultural as well as economic phenomenon. Through rapid cycles of boom and bust, in an atmosphere of fast dealing, open competition, and precipitous fiasco, the major law firms became over the years bastions of stability and influence. Oilmen came and went, their businesses flourishing and suffocating like flowers in the seasons, but the lawyers prospered in spring and fall alike. The client of a major downtown firm might pass through the firm’s specialized departments as if propelled by natural law: as the business bloomed, the corporate department would handle its charters and stock offerings; as the company became entangled in commercial disputes, the litigation department would try its cases in court; and finally, when the cycle was played out, partners in the bankruptcy department awaited with consoling words and the appropriate Chapter 11 papers. Over a lifetime, an individual client might repeat this cycle two or three times with different businesses, and through every phase the wealth and power of the law firm grew. Psychologically, the lawyers at the big firms represented the antithesis to Houston’s wild, risk-taking ethic. They were cautious men, well trained, cerebral, detached. In a city that sometimes resembled a casino, they were the only ones in town who never rolled the dice. Instead, they stood quietly beside the table, ever so often raking off a pile of money.
In January 1984, when an embittered Hugh Liedtke returned home without a single barrel of oil to show for his bid to take control of Getty Oil, there were three exceptionally large and powerful law firms headquartered in downtown Houston: Fulbright & Jaworski, Vinson & Elkins, and Baker & Botts, Liedtke’s firm for more than twenty-five years. In those first days after Pennzoil’s defeated takeover attempt, gossip circulated in the legal establishment that Liedtke blamed his lawyers for his uncharacteristic failure in New York, and that he was so angry that he might take his lucrative business away from Baker & Botts. This hopeful gossip, as it turned out, was unfounded, although Liedtke did shake up his own team of in-house legal advisors: Pennzoil general counsel and former Baker & Botts partner Perry Barber left Liedtke’s employ for a job heading his old firm’s Washington office. But the ties between Liedtke and his downtown law firm ran too deep to be severed by this setback, particularly since Liedtke directed much of his anger at Texaco, not his own advisors. Still, there was a sense in those first weeks of January that Baker & Botts now had something to prove—to its client, to its rivals in the Houston legal establishment, and to the smug Wall Street lawyers and bankers who had vanquished the firm in Manhattan.
In any takeover, failed or successful, lawsuits spring up quickly. They are almost always employed as short-term tactical devices. In the way a baseball manager might argue with the umpires over a close call at third base, lawyers beseech judges to issue preliminary injunctions or temporary restraining orders to stall or reverse takeover events. And during the tense, chaotic maneuvering that surrounded Texaco’s successful bid to take Getty Oil away from Pennzoil and Gordon Getty during those first days of January, a number of such tactical lawsuits had indeed been set in motion. In Delaware, where many large companies are incorporated because of favorable tax laws and a sophisticated court system, Getty Oil had filed suit seeking a judge’s declaration that there had been no contract between Pennzoil and the Getty Oil directors. Pennzoil countered by suing in the same forum Texaco, Getty Oil, Gordon Getty’s family trust, and the museum. The suit asked for an injunction that would prohibit Texaco from completing its deal with Getty Oil, Gordon, and the museum. Pennzoil wanted Getty Oil’s rich assets “held separate” from Texaco until the dispute over who the oil properly belonged to was resolved. At the same time, Pennzoil initiated and sponsored private antitrust suits in Oklahoma and Rhode Island seeking to have the Texaco merger blocked on competitive grounds. In Washington, Liedtke tried to deliver on his indirect threats about Pennzoil’s political power; he hired a prominent lobbyist to persuade Congress’s antitrust subcommittees that Texaco’s acquisition of Getty Oil should be enjoined.
What was important about all of these legal maneuverings, as it turned out, was the chaotic atmosphere they engendered. There were lawyers flying in all directions—to Delaware, New York, Tulsa, Washington, Providence, and Los Angeles, where the Getty family beneficiaries were still attempting to intervene in the deal. New law firms were being retained left and right—firms whose partners were not intimately familiar with the long and sordid history leading to Texaco’s final bid for Getty Oil. So-called “accelerated discovery” programs were suddenly under way, with each side trying to subpoena as many documents and take as many depositions in the shortest possible time. In this flurry, legal strategists on nearly every side assumed, based on their experience in similar situations, that few of these lawsuits would ever advance to trial. These were typical tactical cases, it was thought, the inevitable postcript to a high-stakes merger game. The important question that January was whether Congress or one of the judges involved would issue an injunction holding up Texaco’s merger with Getty on antitrust or breach-of-contract grounds—an eventuality thought to be unlikely. As one of the lawyers involved put it later, “It was the typical kind of lunacy in these sorts of takeover litigation cases where you hope you’re smart enough not to screw up. This was a really tough case because you had so many different interests: Getty Oil, the museum, Gordon’s trust, Pennzoil, Texaco, and so on. You never knew what the hell everybody was going to do.”
To press his interests in this legal free-for-all, Hugh Liedtke had assigned Houston-based Baker & Botts partners John Jeffers and Irv Terrell, as well as some partners from the Paul, Weiss
firm in New York, to the several cases now under way. Liedtke’s lawyers scrambled like mad rabbits from city to city, taking depositions, reviewing “discovered” documents, filing motions, and arguing hearings before judges. In mid-January, Jeffers and Hugh Liedtke flew together to New York in a Pennzoil jet—Liedtke was about to have his deposition taken in the Delaware lawsuit. Liedtke outlined his strategy to Jeffers: the Pennzoil chairman wanted, if possible, to have Texaco’s merger with Getty Oil blocked on breach-of-contract grounds by the Delaware court. If that effort failed, however, he was not going to “forgive or forget” about what Texaco and Getty Oil’s executives and advisors had done to him in Manhattan.
“I’d like, if possible, to have a damage suit in which Joe Jamail would be the lead counsel,” Liedtke said. “Joe is a friend of mine; he’s never represented me, but I think he’s a great damage suit lawyer and he has a great reputation for his ability with juries. I’d like to have him.”
John Jeffers thought that his client’s idea made good sense. The richly flamboyant Jamail was known in Houston as the “king of torts.” He was renowned throughout the city for the outrageous judgments he won from juries in personal-injury and other plaintiffs’ damage suits. He happened also to be the leading antagonist of Houston’s three giant corporate law firms, including Jeffers’ Baker & Botts, which tended to represent corporate defendants in the local damage suits brought by Jamail and his brethren in Houston’s populist, highly colorful, and vaguely disreputable personal-injury plaintiffs’ bar. An alliance between Jamail and the staid downtown firm of Baker & Botts would be unusual indeed. At the moment, however, winging to New York with one of his firm’s most important clients, John Jeffers was less concerned about any potential discomforts of partnership with Jamail than he was about serving Hugh Liedtke.