The Taking of Getty Oil

by Coll, Steve;

  “There are only two problems I can think of at this point,” Copley said. “One is that Mr. Lasky is older than our age requirements for board members allow. I don’t think that will be a problem, but we shouldn’t completely overlook it, either. There have been some small diplomacy problems with a couple of our directors over age, and that could conceivably be a hang-up.”

  “Look, Dave, if that’s the only thing that stands in the way after all of this, that’s not going to be a problem.”

  “You and I know it’s not going to be a problem. I’m just alerting you to the diplomacy of it. The other thing, though, is the exact number of the supermajority of the board. You and Lasky kept insisting on an eighty percent figure for the supermajority, which would require Gordon to enlist one other director besides Mr. Lasky. I think maybe seventy-five percent would be better. Then he’d have to persuade two other directors.”

  “Dave, don’t make a mistake. Sid used that eighty percent number in our conversation on Friday. He seemed to accept it.”

  “I don’t remember that.”

  “I distinctly remember it because the logic of the whole thing is wrapped up in that number. This is what you guys call a deal-braker. Let’s not let the thing get screwed up on that basis. I think we’ve got something that’s going to fly here.”

  Copley emphasized that he was speaking only for himself, but he left Cohler with the strong impression that he understood and agreed. Finally, this was a deal that could work, Cohler thought.

  Later that Monday, and all through the week, Cohler talked with Winokur, who had returned to Philadelphia, about the kinds of papers they would have to draft in order to implement the plan. Geoff Boisi, too, joined these conversations—his expertise on corporate by-laws and reorganizations was useful, and it would also be important to have Goldman, Sachs help sell the plan to the Getty Oil board of directors. Petersen was expressing some skepticism about how the directors would react to Lasky’s plan. He said that he couldn’t promise anything.

  The September quarterly board meeting was coming up in just a few days, beginning Friday, the ninth. It was the annual “resort” meeting, the one held each year at a luxurious locale where management and the directors could bring along their wives for a weekend of golf, tennis, shopping, dining, and somewhat incidentally, a board meeting. The gathering this year was to be held at Pebble Beach, the golfing resort on the Pacific Ocean just south of San Francisco. Cohler hoped that Winokur and Petersen would agree to present the new buy-back and supermajority plan when the meeting began on Friday. But Winokur was reluctant. He said that he didn’t want to present the directors with a “half-baked cake,” and that he wanted to be sure that all the details of the agreement were final before it was disclosed.

  As he talked with Winokur about Pebble Beach, Cohler’s concerns began to grow. Winokur said that he was thinking about inviting Geoff Boisi to the meeting. Cohler thought that was a bad idea. Boisi’s presence would only raise the directors’ worries about in-fighting between Petersen and Gordon. At the “blood on the floor” session in Lasky’s office the previous Thursday, the company and the trust had come close to declaring open warfare. Now they seemed to be moving again toward compromise. Boisi was a merger specialist, a game-player. He could only give the directors the wrong impression.

  “Look, if the plan is going to be presented at Pebble Beach, then Geoff should be there because he’s key to the presentation,” Cohler said. “But if it’s not going to be presented, and you’re telling me that you don’t think it will be, then you are holding back from the board something that is very close. You want us to work out all the fine points. If you have Geoff there, that is going to invite questions about the status of relations between the company and the trust. And you have almost no chance, in my view, of getting through a board meeting without trickling the thing out, rather than presenting it in an orderly way. I think we’re close enough to having this thing actually done so that it can be recommended by management. I don’t see why we’re screwing around with all this stuff. Let’s just do it.”

  “Geoff’s going to be on the West Coast,” Cohler was told. “We’ll see then if his presence at the meeting is desired by Sid.”

  “Look, it’s not up to me. I just simply expressed my opinion. I believe we’re all working toward the same goal.”

  “I just want to be sure that we have some piece of paper that can be agreed upon before it goes to the board,” Winokur said. “Geoff will be flying with Sid and me in the company plane to Pebble Beach. We’ll decide en route whether he should attend.”

  When he heard that, Cohler thought to himself, That ain’t what’s going on here. He said nothing, but he suspected that management was far less interested in the Lasky plan than they seemed to profess. He feared that Petersen intended to use the Pebble Beach meeting to launch some new assault on Gordon.

  They arrived at the resort on Friday from all across the country. Many of the directors brought their golf clubs with them, expecting innocently that the weekend would be easy and relaxed. They were soon disappointed. As the board meeting dragged on and on, some of them gazed wistfully through the hotel windows at the spectacular vista of manicured, verdant fairways winding along the rugged, windswept California coastline. Years later, what they remembered most clearly about the Pebble Beach meeting was the feeling that an exceptional golfing opportunity had been wasted.

  Inside the lushly appointed hotel conference room where the board gathered on Friday, the mood was tense. Later there would be contradictory recollections about what was said at the meeting, and by whom. This much was agreed upon by nearly everyone who attended:

  Shortly after the meeting was convened and after some routine preliminary business was dispensed with, Sid Petersen asked Gordon Getty, Harold Berg, and their advisors to excuse themselves. Petersen said that the board was going to consider the nomination of Harold Williams to be a director—Williams had been pressing for a seat on the board, and Petersen had earlier told the Lasky lawyers that the directors would consider the request at Pebble Beach. Since Gordon and Berg were trustees of the museum, of which Williams was president, it would be inappropriate for them to participate in the discussion. So Gordon and Berg returned to their rooms at the hotel. They were absent during most of the meeting.

  When they were gone, Sid Petersen apparently decided that an important opportunity was at hand. For more than a year now, he had been fighting and negotiating and arguing and jockeying with Gordon Getty, and yet he had never once informed his board about the extent of Getty Oil’s problems with its largest stockholder. With some directors, such as Henry Wendt and Chauncey Medberry, Petersen had been more open than with others. But no one besides himself, Winokur, Copley, and perhaps Boisi knew the full story. At the July board meeting in Los Angeles, Petersen had tried to suggest the flavor of his dealings with Gordon, but he had been in a difficult position. For one thing, Gordon had been present in the room. For another, the Goldman, Sachs studies were under discussion and Petersen did not want to reveal to Goldman the nature of management’s contentious relationship with the chief stockholder, for fear the information might put the company in play. Now, finally, Petersen was prepared to reveal everything to the board. He had no choice. All of the plans and plots now afoot—the Lasky proposal for a supermajority, the Winokur proposal for a buy-back with handcuffs or cotrustees, the maneuverings to launch a family lawsuit against Gordon—were coming to a head. Petersen had to know where his directors stood, what they would permit.

  He presented a kind of chronological monologue, interrupted by questions and occasionally by comments from Winokur and Boisi, who did attend the meeting at Petersen’s request. He began back in May 1982, with the death of Lansing Hays and the ominous dinner meeting with Moses Lasky. He told them almost everything: Gordon’s flirtation with the Cullens, the meeting at the Bonaventure, the visit by Whitehead to Gordon’s Broadway mansion, the possibility of launching a family lawsuit seeking the appoin
tment of Bank of America as a cotrustee. In greater detail, he described what had occurred since the last directors meeting in July: Gordon’s proposal for an LBO takeover with a fence, the concern about Harold Williams’ ambitions, the handcuffs negotiations, the discussion of an LBO takeover without a fence, the blood-on-the-floor meeting with Lasky and Cohler, and finally, the most recent proposals for a supermajority on the board and a stock buy-back that would put Gordon in control. It was hardly the objective and “orderly” presentation of the supermajority plan that Cohler had hoped for.

  Years later, trying to explain his board’s deeply furious reaction to the history he recited, Peteren said that perhaps he had lost some of his perspective about the intrigue at his company by the time of the Pebble Beach meeting. Looking back, he said, he could understand how it happened. He was involved so closely in the negotiations and battling with Gordon and the Lasky firm that he lost sight of the big picture. The compromises and negotiations, the plots and counterplots, had built up incrementally, slowly, pushed along by the seemingly logical imperative that the independence of Getty Oil Company should be preserved. The directors, however, had not been in the trenches. They had not seen the give-and-take. They only saw the end result that day in Pebble Beach: a proposal that would give Gordon Getty control of their company. This they could not abide. They were furious. They could not even imagine, several of the directors told Petersen when he was finished with his monologue, how he could have allowed things to go so far. What was all this nonsense about supermajorities and handcuffs and what have you? What was Petersen talking about? Gordon Getty is not going to run this company, they said. He is not going to take control. We will not have it.

  At the July meeting, the directors had expressed frustration about Gordon and the million dollars Petersen had spent on the Goldman studies, apparently to placate him. The directors thought that they had made it very clear that no further studies were to be undertaken, that too much money had been wasted on Goldman already. Now they were being told not only that studies had continued, but that management had actually contemplated handing the company to Gordon in an LBO takeover. The directors’ earlier frustration was transformed to anger. This is absurd, they said.

  “You’ll never be able to make a deal with Gordon Getty,” one of the outside directors told Petersen. “You’ll never do it. Forget it.”

  “If Gordon wants to put this company up for sale, then at least let’s do it right,” Henry Wendt said. “If you want to protect the minority shareholders, then you must be prepared to sell the company in an orderly fashion—through some kind of controlled action.”

  Most of the vitriol was aimed at Gordon. The directors cursed him, called him a fool, a plague, a menace. But they were angry, too, at Petersen. He had been much too soft on Gordon, they said. The implication was clear: there was only so far Petersen could go to protect his career. No one was accusing the chairman of putting his own interests ahead of Getty Oil’s, but the directors were reminding Petersen sharply that he had to accept reality. Whether by design or by inadvertent bumbling, Gordon was putting the company into play. Petersen had to accept that some kind of sale was now a strong possibility. Certainly, he had to understand that the directors would rather sell than let Gordon take control.

  Gordon, of course, had no idea what was passing behind the conference room doors. He had been asked to leave while the directors considered Harold Williams’ nomination to the board. But hours passed, and still the discussion on this seemingly narrow issue did not end. (The board decided eventually to postpone the question indefinitely). One executive in attendance said later that anyone other than Gordon would have stormed back to the conference room and demanded an explanation. “But Gordon wasn’t aware of it,” the executive said. “He was a little frustrated that he had been out of the meeting so long. But he didn’t get it.”

  Indeed, when Gordon returned to his Broadway mansion from Pebble Beach that weekend, he still believed that Lasky’s plan for a supermajority would prevail, and that some of the directors, at least, would welcome his ascension to the chairmanship of Getty Oil. The irony was that Gordon regarded as his staunchest allies on the board two outside directors who had most vociferously opposed him at Pebble Beach, Henry Wendt and Chauncey Medberry III. The latter had even indicated at the Pebble Beach session that he would resign if Gordon ever became chairman. But Gordon didn’t understand. He believed that while they were sometimes rude to him, the company’s managers and directors at least retained some basic respect for his talent and intelligence. Nothing he observed at Pebble Beach had changed his mind about that.

  On Monday, after the meeting had ended and everyone had scattered home, Bart Winokur called Moses Lasky in San Francisco. “There’s a lot that has to be said about what happened at Pebble Beach,” Winokur reported. “It’s going to affect our negotiations. I think that you and Tim should come back here to Philadelphia and meet with us as soon as possible.” They struggled to find a date when everyone was free, but it was difficult, and Winokur finally suggested the coming Sunday, September 18, the day after Yom Kippur. Lasky said that he objected to traveling on Saturday, the holy day. Winokur answered that it was a holy day for him, too, and he understood Lasky’s feelings. But this was important, he said, and he urged Lasky to come anyway. Lasky agreed.

  By different routes, Lasky and Cohler arrived in Philadelphia on Saturday evening, September 17. They ate dinner together at Bookbinders restaurant and rode over the next morning to Winokur’s offices at Dechert Price & Rhoads, directly across the street from Philadelphia’s historic City Hall.

  Winokur met them in the reception area and escorted them to an airless, windowless conference room. When they stepped inside, Lasky saw that Geoff Boisi had come down from New York for the meeting. Lasky stopped dead in his tracks.

  “What is he doing here?”

  Like Cohler, Lasky had grown increasingly suspicious of Boisi’s role. He thought that Goldman, Sachs had been hired with the explicit understanding that the firm would remain neutral in matters involving Gordon and the company. Now, he thought, Goldman and Boisi had decided to throw their weight behind Sid Petersen and management.

  “I don’t think I’ll talk while he is here,” Lasky said defiantly. “Mr. Boisi, what you’re trying to do is precipitate the sale of the company so that Goldman, Sachs can pick up some easy fees.”

  Boisi denied the accusation and responded that it was Lasky’s client who had put the company in a precarious position.

  Diplomatically, Winokur tried to persuade Lasky that Boisi should be allowed to join the meeting; he had come down all the way from New York, and he understood the issues facing them very well. Finally, Lasky relented. They took their seats at the conference table.

  “Your proposal for a supermajority was presented to the board at Pebble Beach,” Winokur began. “But we’re facing a runaway board now. The board was absolutely angry at Sid. They told him that it was their view that in July they had instructed him to end the Goldman studies. The board feels that management has been much too yielding in dealing with Gordon all during the past year. They feel very strongly about not taking Gordon to fifty-one percent without strong assurances that the integrity of the company and the interests of the public shareholders can be protected. Some of the directors felt that not even a new cotrustee or some of the handcuffs we’ve discussed would be adequate.

  “The board is extremely hostile,” Winokur concluded. “But Sid still feels that it would be best if we can come up with some solution that would allow the company to continue in business. He wants to try it one more time. And there is some chance, if we can work something out together, that Sid might be able to persuade the board to consider it.”

  As Cohler and Lasky listened to Winokur, they suspected that he was exaggerating the board’s reaction at Pebble Beach. But they had not been present. They had no evidence with which to contradict Winokur’s adamant assertions that the directors opposed any concessions t
o Gordon.

  Winokur said that he, Boisi, and some other Dechert Price lawyers had been working on a new proposal all week long. It was a complicated proposal—so complicated, Lasky said later, that he wasn’t sure that he ever understood it. They talked about it for more than an hour. The company would buy enough shares to put Gordon in a majority position, but he could not vote any shares over 40 percent, and the company had dozens of mechanisms to protect itself if Gordon should ever attempt to exercise power through a proxy fight or other means. The proposal would neutralize Gordon effectively and indefinitely. To Cohler and Lasky, it was like taking “five million steps” backward.

  “This is just a bunch of rigamarole,” Lasky finally declared angrily. “This is just a piece of paper designed to end any discussion.”

  “That’s not what it is at all,” Winokur answered emphatically.

  “You are trying to pull something over on me, Mr. Winokur. You deceived me when you said it was important that I come to Philadelphia.” Lasky complained that he had traveled on a religious holiday only to find himself in an airless room talking about a worthless proposal.

  Again, Winokur denied Lasky’s accusations. It was time to break for lunch, but Lasky now declared that he wasn’t coming back. He and Cohler were going to head for the airport and try to catch an earlier flight back to San Francisco, he said.

  “Why don’t you at least think about it over lunch, and come back and see if there isn’t any way you can consider this. Perhaps you’re just overreacting a little. I’m sorry that you’re uncomfortable in the conference room—we’ll do something about that—and I’m sorry that you had to travel on Saturday.”