The Taking of Getty Oil

by Coll, Steve;

They met again after lunch, but the mood did not change.

  “Can’t you come up with something better?” Lasky asked. “If I go back to San Francisco empty-handed, it’s going to hurt my credibility with Gordon.”

  “I feel bad about that. But I think we’ve given you something reasonable and we’re willing to work on it,” Winokur said.

  “Why don’t you put your proposal in writing,” Lasky suggested.

  Winokur agreed to do that. “The problem with your supermajority proposal is that it focuses an enormous amount of pressure on a single individual—Gordon, or the one director he tries to persuade. That idea is contrary to the whole concept of the board of directors as a decision-making body,” he said.

  Lasky yielded no ground, however, and the meeting ended that Sunday afternoon on a note of pessimism. Lasky said he would talk to Gordon. Winokur said he would talk to Petersen. There was nothing else they could do.

  What bothered Tim Cohler as he flew back to San Francisco that evening was the realization that Bart Winokur had seized the initiative in their negotiations. It was Pebble Beach that had changed things, or more precisely, Winokur’s version of what happened there. Lasky’s supermajority proposal was dead now because Winokur insisted that the board would not accept Gordon as a majority shareholder without very tight, almost absurd limitations on his authority. Was Winokur telling the truth about the board, or was he just using Pebble Beach as a negotiating ploy? Cohler had no way to know, but he had a powerful instinct that what he called the “Winokur-Boisi combine,” the outsiders, the game-players, were distorting the facts. Perhaps now was the time for Gordon to approach the board directly, to begin searching for a “family” solution that excluded the posturing and manipulation of the advisors.

  Cohler and Lasky discussed these ideas with Gordon when they returned to San Francisco. Within days, Gordon had contacted Getty Oil directors Chauncey Medberry and Henry Wendt by telephone. On Friday, Gordon called Lasky to say that he had arranged a dinner with Medberry in Los Angeles for the following Monday, September 26. Gordon wanted Lasky to attend, and Lasky agreed to come along.

  That Monday, Lasky was in Los Angeles attending to other business. Gordon reached him by phone at 11:25 A.M. and said that dinner with Medberry was set for that evening. Gordon wanted Lasky to meet him at the Beverly Wilshire Hotel, where Gordon was staying, at six o’clock. Lasky said that was fine.

  Just a few minutes later, Gordon spoke by telephone with Medberry and said that he was no longer available for dinner, but wanted to meet him immediately for lunch. Medberry was surprised, but said that he would come to the Beverly Wilshire as soon as possible. He arrived at Gordon’s room shortly after noon. Gordon invited him in for a talk.

  “I am interested, in some form or other, in acquiring control of Getty Oil. I want to know whether you would agree to stay as a director should I obtain control,” Gordon said.

  “I would not serve on the board if you were the sole trustee and in control of the company,” Medberry answered bluntly.

  Gordon, apparently, was shocked. They talked some more, but there was nothing else to say: Medberry was adamant. If Gordon ever took control of Getty Oil, he would resign from the board. After a time, Medberry asked Gordon if he was interested in eating lunch, as they had planned. Gordon answered that he wasn’t hungry, but that he would accompany Medberry to the restaurant. While Medberry ate, Gordon sat with him, sipping water. When the check came, Gordon allowed Medberry to pay it, which struck Medberry as peculiar, since Gordon had invited him to the Beverly Wilshire in the first place.

  At five o’clock, Lasky arrived at the hotel and checked in. He found a message to call Tim Cohler at their offices in San Francisco.

  “I had a phone call this afternoon from Gordon telling me that there was some mix-up, that Medberry had insisted on seeing him at noon,” Cohler reported. “They met, and Meberry told Gordon that there was no way he would consent to the trust obtaining a majority of the stock.” At six, Lasky stopped by Gordon’s room to hear what had happened. Gordon repeated what Medberry had said earlier. Gordon was very upset.

  “The directors are a bunch of snakes,” Gordon said. “They’re trying to loot the company.”

  Lasky said that he didn’t think that was true, but there was little he could do to calm his client. As for the confusion over the scheduling of lunch, Lasky wrote in a confidential memo to file a few days later, “I have not pursued with Gordon this discrepancy.”

  The next day, in San Francisco, Gordon telephoned Lasky to say that he had devised an entirely new plan for dealing with his problems with the Getty Oil board of directors. He made an appointment to discuss it on Wednesday in the Lasky offices.

  “I’m considering five possibilities,” Gordon told his lawyers. “First is accepting the immediate resignations of all or most of the board of directors and replacing them with my designees. Second is to do nothing, maintain the status quo. Third would be to make a proposal to the museum for an immediate joint takeover of the company. Fourth, we could continue to work on the proposals from Winokur presented in Philadelphia. And last, I might launch a proxy fight against management and the company.”

  After talking with his client on Wednesday, Lasky wrote a letter to Gordon at the Broadway mansion. He urged Gordon to consider only the third and fourth of his enumerated plans. His first idea, accepting the resignations of the “snakes” on the Getty Oil board, “cannot be accomplished for it would constitute a complete and abject surrender by the directors.” The other two possible courses, maintaining the status quo or launching a proxy fight, Lasky dismissed because they “would arouse the immediate interest of raiders and neither you nor the present board of directors would have control of what happens.… The only proxy fight that would have a chance of success would be one mounted shortly before the annual meeting and we do not believe that events will wait that long.”

  Thus there were two choices, Lasky wrote: Gordon could continue to negotiate with management toward the realization of some stock buy-back plan that would put Gordon in a majority position, or he could make a proposal to Harold Williams and the museum for an immediate joint takeover of Getty Oil. “My judgment, shared by Tim and Tom, is that the wisest course is this [negotiated buy-back] deal,” Lasky wrote. The lawyer listed several reasons why a takeover in combination with the museum was a bad idea: it would cost too much; it would probably lead to a lawsuit against Gordon by the family beneficiaries; and finally, “it would constitute a coup. In the eyes of the financial and business public, it would constitute an upheaval at Getty Oil Company—either a condemnation of the present management or a threat of unpredictable future conduct by the company. I would not minimize that consideration.… There are at least four players in the game: you, Getty Oil Company, the museum, and the outsiders or raiders. These four can make various permutations or combinations and no one of them has control of what may happen. Having started down the course of effecting a change in the status quo, I do not see how you can stop midstream, even though one cannot predict the outcome.”

  They met again at Gordon’s Broadway mansion to discuss the letter. Gordon told his lawyers that despite Lasky’s advice, he favored a joint takeover with the museum and he intended to approach Harold Williams with a proposal. At his lawyers’ urging, however, Gordon agreed simultaneously to pursue negotiations with Winokur for a stock buy-back plan. Such a deal would have to be concluded in a matter of days, however, Gordon said. Otherwise, he would meet with Williams.

  “Bart, Mr. Getty intends to attend a meeting of the board of trustees of the J. Paul Getty Museum next Tuesday in London,” Lasky told Winokur that Friday by telephone. “He intends to make a proposal for joint action with the museum. It’s an attractive offer and I don’t see how the museum can refuse it.

  “You have only one chance to choose another course of action,” Lasky went on. “We will send you a set of papers which we think have some chance of being considered by Mr. Getty as an alterna
tive to his making this proposal to the museum. If the company has accepted in writing the materials that we are sending you by a deadline we will specify, that will be considered by Mr. Getty as an alternative to his museum proposal. And I should tell you that there is no room for subsequent discussion.”

  Lasky hung up the phone. He had succeeded, at least, in presenting his client’s unpredictable impulses as a reasoned, tough negotiating stance toward management. Winokur understood well enough what an “offer the museum can’t refuse” might mean. Between them, Gordon and the museum controlled 52 percent of Getty Oil’s stock. If Gordon offered to make Harold Williams chief executive, to give him a free hand to run Getty Oil Company as he pleased, the two of them might combine immediately to take control. They could do it, quite literally, in seconds. They could sign a piece of paper, called a “consent,” declaring that Petersen, Winokur, Copley, and the entire board of directors were fired instantly and that Gordon and the museum were now in charge. If Harold Williams privately longed to control Getty Oil, he would have his chance—on Tuesday, six thousand miles away, in the unlikely environs of London, England.

  12

  London

  On Sunday, Lasky was at home in San Francisco when Winokur telephoned.

  “Moses, you’ve got to go over to London. You’re the only person we can work with. We can’t make a deal without you there.”

  “I don’t know. Cohler and Woodhouse are already over there. You can work with them.”

  “Please.”

  “Well, I’ll see if I can find them in London and I’ll see what they think.”

  Winokur was in Philadelphia that afternoon at the Dechert Price offices. A light rain was falling and the city was enshrouded by heavy fog. Winokur, Petersen, Copley, Boisi, and several other Getty Oil lawyers had reservations to fly to London that evening; they could only hope the fog would lift. Meanwhile, they were all huddled in a conference room on the thirty-fourth floor. An emergency meeting of the Getty Oil board of directors had been called on Friday as soon as Winokur heard about Gordon’s plans to approach the museum with a takeover proposal. Gordon was already on his way to England; he never received notice about the emergency board meeting. When Winokur talked to Lasky that day, he did not mention that Getty Oil’s directors were all assembled in Philadelphia.

  The board had been convened to ratify a plan devised by Winokur, Boisi, and two Wall Street lawyers recently retained by the company, Herbert Galant and Stuart Katz. Fearing that Gordon and Williams might use their combined 52 percent position to sign a “consent” takeover, the Getty Oil advisors had decided to prepare for the worst. There were presently about 80 million shares of Getty Oil stock outstanding. Gordon’s trust owned 32 million, the museum 9 million. Together, their 41 million shares were a majority. But the company also had another 9 million shares in the bank, so-called treasury shares, which had not been issued to the public. The treasury shares were a kind of stand-by reserve of stock. If the board of directors suddenly decided to issue all of the treasury stock, they would increase the total number of outstanding Getty Oil shares from 80 million to 89 million. Then the 41 million shares controlled by Gordon and the museum would only constitute about 46 percent, not enough to take control through a consent. There were a variety of technical mechanisms by which the 9 million treasury shares could be issued, and there were a number of complex legal questions that might eventually snag the plan. But at the least, issuance of the treasury shares would buy the company time by making it impossible for Gordon and the museum to sign a consent firing management and board.

  That Sunday afternoon at Dechert Price in Philadelphia, at Sid Petersen’s urging, the directors agreed to support the plan, and they authorized issuance of 9 million shares to dilute the position of the trust and the museum. The treasury shares were not actually issued that day; management was given a kind of blank check to issue the shares whenever it desired. A bundle of stock certificates was prepared by the Wall Street lawyers, ready for signature. The battle with Gordon might well come down to an Old West “draw,” only it would be pens, not guns, whipped from the lawyers’ holsters. Gordon, Williams, and Petersen might find themselves in the same room in London, negotiating a new compromise. The deal might suddenly fall through. If Gordon and Williams signed their consent takeover firing Petersen before the Getty Oil chairman signed his treasury share certificates, then Gordon would control the company. On the other hand, if Petersen signed first, then Gordon’s power would be diluted. The question would be, who could draw his pen the fastest?

  This scenario and many others were discussed with the directors that Sunday afternoon at Dechert Price. Dave Copley reported on the progress of the family lawsuit against Gordon; he said that he hoped to meet with Vanni Treves, J. Paul Jr.’s solicitor, the next week in London. Surely, if Paul Jr. was ever going to authorize a lawsuit against his brother, he would do it now. Gordon was careering out of control. He was endangering not only the company, but his family’s wealth, Copley believed. Sid Petersen explained the status of the buy-back negotations with Gordon. They would not give the company to Gordon, he said, but they had to be prepared to compromise, to buy as much time as possible.

  The meeting recessed and again Winokur called Lasky at home in San Francisco. The company’s best hope, Winokur thought, was not to play dueling pens with Gordon Getty, but to negotiate a realistic buy-back plan with Lasky. Winokur had studied the “ultimatum” proposal sent to Philadelphia by Lasky earlier in the week. It was unacceptable to management. But Winokur had sat down with Lasky’s plan and with his own and had drawn up a list of differences, trying to identify ground for a potential compromise. He was encouraged by that effort. Winokur somewhat naïvely believed that by dint of inspiration and hard work, any problem could be solved, even the problem of Gordon Getty’s personality.

  “I’ve talked to Cohler and Woodhouse in London,” Lasky told Winokur. “They said they’d like me to come over. I’m leaving on a five-thirty Pan Am flight this afternoon.”

  “That’s great, Moses. We’ll see you over there.”

  Winokur reported the news to Petersen and Boisi: there was still hope that Gordon could be stopped, or at least slowed, in London. None of them really wanted to issue the 9 million treasury shares. That would dilute the value of the company’s outstanding stock, inviting lawsuits, and it would certainly make clear to Wall Street that Getty Oil Company was beset by serious internal dissension. The blood, as Winokur would put it, would be everywhere.

  Still, as they flew to London that night, none of them knew about the museum. What would Harold Williams do? What did he want? Ever since Pebble Beach, Petersen and Gordon had been acting on the assumption that Williams wanted to control Getty Oil as much as they did. But they had not spoken to Williams about it directly. Gordon had not talked at length with the museum president since their meeting in July, when they discussed an LBO takeover with a fence. Petersen, too, had been extremely cautious during his few telephone conversations with Williams. Not only did he suspect that Williams wanted his job, he also knew that if Getty Oil and Gordon ever reached an agreement on a stock buy-back plan, they might try to force the museum to sell its shares in a “squeeze” in order to raise the Sarah Getty Trust’s stock position above 50 percent. It was important, then, that details about the company’s negotiations with Gordon be kept from Williams. At one point in July, fearing that Williams would accuse them of improper secrecy, Winokur and Cohler had drafted a written statement about the status of the buy-back negotiations and Cohler had read the declaration to Williams over the telephone. Since then, they had told the museum president little about the progress of their talks.

  One thing they did know that Sunday night was that Harold Williams had finally hired a lawyer to help him protect the museum’s stock position should open war erupt between Gordon and the company. And not just any lawyer—Williams, they learned, had retained Martin Lipton, Wall Street’s premiere takeover lawyer, a man of singular re
putation in American finance. Both Getty Oil and the Lasky firm assumed that Lipton had been playing a significant role behind the scenes that summer, advising Williams about how the museum should respond to Gordon’s LBO takeover offer and to the growing suspicion and hostility expressed by Sid Petersen about the museum.

  In fact, it was not until that weekend, when Petersen, Winokur, Boisi, and the rest convened the emergency board meeting in Philadelphia and then flew on to London, that Marty Lipton actually became involved in the tangled affairs of Getty Oil Company. Lipton had met with Williams in Los Angeles a couple of times during the summer, but the visits had been mainly social. Lipton and Williams were friends; they had met when Williams was chairman of the SEC and Lipton served on a special advisory committee to the commission made up of Wall Street securities experts. They sustained their friendship even after Williams left the East Coast to become president of the J. Paul Getty Museum Trust. Lipton served on the board of the Los Angeles Museum of Contemporary Art, so when he flew to L.A. for his monthly board meeting, he would arrange to have breakfast or lunch with Williams in Beverly Hills. It had been at one of those casual lunches in July that Williams asked if Lipton would help him protect the museum’s huge stock position in Getty Oil. Lipton agreed to help. It was a favor for a friend, he said later. He did not regard the engagement as a paying matter for his law firm. When he left for London from New York on October 3, spurred by unexpected, urgent phone calls from Tim Cohler and Harold Williams, Lipton had not even opened an office file on the museum case. Suddenly, Gordon was going to make an offer the museum could not refuse, the lawyer was told. But Lipton was barely acquainted with the personalities involved.

  He was a lawyer well qualified to learn as he went along, however. Indeed, by that October, 1983, the mere mention of Martin Lipton’s name in connection with a takeover proposal was enough to change the entire course of negotiation. In less than two decades, Lipton and his law firm, Wachtell, Lipton, Rosen & Katz, had risen to a position of profound influence over American industry and finance. Lipton himself was considered to be one of the two leading merger lawyers in the country, along with Joseph Flom, of the large Wall Street firm Skadden, Arps, Slate, Meagher & Flom. Lipton and Flom formed a kind of traveling legal exhibition: in numerous hostile takeover battles during the early 1980s, Lipton was retained by one side, Flom by the other. They developed a comfortable, competitive relationship that earned each of them millions per year in fees and established their firms as the leaders in merger and acquisition law. Lipton had invented the famous “poison pill” defense for corporations under attack by a hostile raider—it was a complex stock issuance device that could be quickly “swallowed” by a company’s board of directors, making the company instantly unattractive to a hostile bidder. Flom, similarly, had devised innovative attacking techniques to avoid the perils of Lip-ton’s poison. They did battle again and again, each time becoming stronger, smarter, and above all, richer.