The Taking of Getty Oil

by Coll, Steve;

  “I have a question for Gordon Getty,” Henry Wendt now said. “I have heard that you were considering offering the entire company for sale, but that you rejected that idea in preference for the new Pennzoil offer.”

  “I have considered and rejected many things,” Gordon said with rare understatement. “None of them was better than this.” None of them, that is, put him in control of the company and empowered him to throw out the “snakes” now gathered around him.

  “Why did you reject selling the whole company?” Wendt pressed.

  “I am certain that this is the best approach,” Gordon answered.

  “You have had discussions with other companies, as we know. Have you considered other prices?” Harold Stuart asked.

  “I have not had any discussions with other companies,” Gordon said. “Some of my advisors have.” His demeanor, even in this most intense environment, was unchanged. The mop of curly hair, the furrowed eyebrows, the dramatic, squinting expressions—it was like sharing a board room with Amadeus.

  “Well, will Mr. Siegel comment on these discussions?”

  “There have been no discussions with anyone regarding a specific price,” Siegel said. “The $110 price gives you a feel for my firm’s opinion about what’s fair.” Siegel, like Boisi, would be required to issue a “fairness letter” on behalf of Kidder, Peabody stating that the price of the deal was proper. Siegel, whose client was a buyer, thought $110 was fair. Boisi, whose client was a seller, thought $110 was too low.

  “How did you arrive at that price? Do you think it’s the best price available?”

  “I never said that. I have looked at the Goldman data. I don’t know if anyone would pay more than $110 for this company or not. I only know that right now, you have someone willing to take all the public shares at $110 and it appears fair to me.… The fact is that no one can guarantee that the company can do better than $110 per share.”

  “Can you guarantee that we can’t do better than $110?” Henry Wendt demanded.

  Siegel conceded that he could not.

  “I’ve been approached by an oil company that’s financially capable of buying Getty,” Petersen told the board. He did not disclose the name of this suitor. “I think a price well above $110 is potentially available. Besides, there are other alternatives than the sale to some third-party buyer.” Petersen was referring to the self-tender, ninety-day auction talks that would have bought the Getty Oil directors time to find a solution to their conundrum. The chairman was hoping that somehow he could revive Gordon’s interest in a self-tender. He knew nothing, of course, about the letter Gordon had signed with Liedtke promising to try to fire the entire board if they failed to go along with the $110 takeover proposal.

  “Is it correct, as I understand it, that on Saturday Gordon was a seller at $110 and today the trust is a buyer at $110?” Henry Wendt asked.

  “We never asked Gordon Getty to be a seller at $110,” Winokur answered. “That was his idea, to set the bottom price for an auction at $110. What surprises me is that the company has said repeatedly that we could do better than $110 and yet this doesn’t seem to be what the trust wants.”

  Tim Cohler piped up to challenge Winokur. Ever since he found out about his role in the family lawsuit against Gordon, Cohler had regarded Winokur as a duplicitous menace. “What’s been said is that some of your bankers have a hope that there would be a better price than $110. The agreement you have proposed for a self-tender and auction would require the trust to sell its shares at $110 plus one penny.”

  “That’s just not true,” Winokur countered forcefully. “You proposed that Mr. Getty would sell at $110. If you had said the trust would sell at $115 or more, the company would have agreed to that price.”

  “Would the trust sell at $115?” Petersen asked.

  “I want to discuss all of these proposals in order,” Cohler answered. “I don’t want to do this twice.” It was the Pennzoil takeover proposal at $110 that was now on the table. The directors had to make a decision about that deal, one way or the other. Cohler was not about to take the pressure off of them by discussing a different plan.

  “I am very uncomfortable with the way the proposal has been brought in, with the directors being placed in the position of having to make a decision in three or four hours on a take-it-or-leave-it basis, involving enormous sums of money and complex issues,” said Clayburn La Force, dean of the UCLA Management School and one of Petersen’s more recent recruits to the Getty Oil board.

  That was precisely the point, Geoff Boisi added. Time was on Pennzoil’s side. Boisi and the company’s other Wall Street advisors began to sling the metaphors of their trade about the crowded room. The directors were faced with “a gun at their heads.” Pennzoil, Boisi said, was “giving this company a bear hug. It is using speed and pressure to get a good deal for itself—that’s the tactical reason behind the short time for consideration. The directors are here to figure out what is best for the company, not what is best for Pennzoil.”

  As the meeting dragged on, the anger and frustration of the Getty Oil directors focused increasingly on Gordon Getty. He had brought them here, they felt. He was responsible for their predicament. If they voted to approve his $110 takeover proposal without a fairness opinion from Goldman, Sachs, they would be sued. If they voted not to approve the proposal, they would be sued. If they did nothing, they would be sued. It was not a comfortable situation. Over and over, they tried to persuade Gordon that there was only one sensible course, only one way for them all to walk away from Getty Oil Company with their hands clean: the sale of the company to some third party at a price above $120 per share. Then Gordon and his family trust would receive billions in cash, the public shareholders would be happy, Petersen and his cohorts would retire on their golden parachutes, the advisors would pocket millions in fees, and all would be right with the world. Yes, Hugh Liedtke would be upset, but the Pennzoil chairman had known that he was taking a risk when he entered the fray. Yes, rank-and-file Getty Oil employees might suffer under new, outside ownership, which would be eager to consolidate, but perhaps they could find a buyer who would agree not to implement drastic layoffs. Why, Petersen and his advisors asked again and again, was Gordon unwilling to sell to the highest bidder? Why did he insist on pressing this $110 joint takeover with Pennzoil?

  But all of the questions, all of the anger and threatening bluster, had no apparent effect on Gordon Getty.

  “Everyone has been working for months and then a paper is laid on the directors and we are told we have four hours to react,” Harold Stuart told Gordon at one point. “It’s unreasonable to expect us to act on that proposal with good business judgment within that time. This is a seven-billion-dollar deal. The trust and the museum are pushing the board to take or leave the Pennzoil offer tonight, and I cannot personally assimilate the facts required to make a decision in that time.”

  “We only saw Pennzoil’s proposal yesterday ourselves,” Cohler answered.

  “The trust’s advisors are professionals. You are familiar with the situation.”

  “The new Pennzoil offer exists and it is $110,” Cohler insisted.

  “On the $110 self-tender that we worked out yesterday, if the price was higher, would the trust still turn that down?” Sid Petersen asked.

  “We’ve been close to a deal a lot of times, but it hasn’t happened. You are now confronted with what is a contract signed by the trust and the museum,” Cohler said.

  Petersen had no choice: he had to take a vote. Gordon moved that his joint takeover with Pennzoil be adopted by the board. Alfred Taubman, the Detroit real-estate developer recruited to the board by Ann Getty in November, seconded.

  “How many directors are needed to pass it? Fourteen?” Harold Stuart asked.

  “It is the trust and the museum’s position that fourteen votes are necessary,” Winokur answered. Another company lawyer volunteered that with less than fourteen votes they could all be sure that the deal would wind up in court if i
t was implemented.

  The directors were polled. Gordon, Taubman, and Graham Allison, dean of Harvard’s Kennedy School and another of Gordon’s recent nominees, voted yes. Petersen, Boothby, Teets, Wendt, and Bob Miller voted no. It was Larry Tisch’s turn.

  “I don’t want to vote until I know more of the consequences involved. If nothing happens, the shareholders could end up with $50 a share, with Pennzoil working with the trust and there being no other offer by anyone.”

  “I think the company is worth much, much more than this,” Bob Miller responded. “Gordon Getty would rather buy than sell at $110, which in my view means that $110 is a low price.”

  “We have to hit the road and get more than $110 for the public shareholders,” Wendt added.

  “With time, the company could do better,” Tisch conceded. But Tisch then voted for the $110 Pennzoil proposal anyway. Harold Williams followed with another yes vote. The rest of the board, however, voted no. There was some question later as to which way Harold Berg went—most people remembered that he voted yes, though it was recorded that he voted no. Either way, it didn’t matter—Gordon’s proposal to take Getty Oil with Pennzoil for $110 per share was defeated. The final tally was either 10–5 or 9–6 depending on how Berg’s vote was counted.

  Petersen now turned to Tim Cohler. “You said earlier that the group had to deal with things as they are. The Pennzoil proposal has now been turned down by the board. Is there any possibility that the trust will now go back to the other proposal we have discussed?”

  Geoff Boisi summarized the alternative advocated by Petersen: the board would approve a self-tender offer for 20 percent of its stock at $110 per share or higher, then spend ninety days searching for a buyer for the entire company.

  “Do the directors understand the various proposals?” Petersen asked.

  “No,” Gordon answered. “What are they about?”

  “The purpose of the self-tender would be to ward off Pennzoil while an effort is made to sell the company at a higher price for the benefit of all shareholders,” Petersen explained. He went on to describe how the self-tender could be financed.

  “Why can’t we all go back to the proposal for a three-way self-tender, including Gordon, that was considered on Saturday?” Henry Wendt asked.

  “Because of Gordon Getty,” Larry Tisch answered.

  Again, they had reached a stalemate. It was now ten-thirty, four and a half hours into the meeting. The directors were tiring. Some of them were hungry. All of them were edgy. Petersen suggested that they take a break.

  For two hours, they wandered in the hallways of the Inter-Continental Hotel, caucusing, negotiating, persuading. Petersen, Boisi, and Winokur continued to press for the self-tender proposal that would buy the company time to hold an auction. They needed fourteen votes. Talking individually with his directors, Petersen took a straw poll and then reported to Winokur that he had ten votes: all of the directors who had voted against the Pennzoil takeover, including Harold Berg. Somehow they had to line up four more votes. Petersen, Winokur, and Boisi fanned out, talking privately with Tisch, Williams, Taubman, and Allison, Gordon’s supporters on the board. Williams agreed fairly quickly to support the proposal—his goal now was simply to sell the museum’s shares as quickly and with as few complications as possible. Tisch said that, if necessary, he would cast his vote against Gordon and for the self-tender and he agreed to persuade Taubman and Allison. Petersen and Winokur watched as Tisch drew the two directors aside in the hallway and talked with them. A few moments later, Tisch returned.

  “They’ve agreed to support the self-tender and auction proposal. But we have to get back in the board room and vote.”

  Just as Petersen and Winokur began to gently herd the directors back into Sutton Room II, however, telling them that it was time to reconvene their meeting, a caterer arrived with a chocolate cake. The famished directors gathered around it and began to eat. Petersen watched helplessly as Taubman and Allison, holding their plates, began to talk with Gordon’s advisors about their plan to support Getty Oil management on the self-tender vote. There was a vigorous discussion between them, out of Petersen’s earshot. Some minutes later, Tisch reported back to the Getty Oil chairman that Taubman and Allison had changed their minds—they would not support the self-tender. Sidney Petersen had been foiled by a cake.

  Gordon Getty, meanwhile, had retreated to a two-room suite around the corner which he had rented for the evening. Mark Leland, his personal financial advisor, was there to man the phone while Gordon was in the board meeting. Arthur Liman, Pennzoil’s attorney, had also been stationed in the suite, prepared to advise Liedtke, who was across the street in his Waldorf apartment, of any new developments. When the board recessed at ten-thirty, Gordon and his advisors told Liman that the vote on Pennzoil’s takeover proposal had gone against them. Liman had called Liedtke to report the bad news. Then he decided to wander into the hallway to talk with the mingling Getty Oil directors.

  Larry Tisch quickly sought Liman out. He explained that the root of the directors’ dilemma was Goldman, Sachs’ refusal to issue a fairness opinion for any price below $120.

  “Arthur, get your client to go up the extra ten dollars and we can close the deal tonight,” Tisch said. “It doesn’t have to be ten dollars in cash. It can be a subordinated debenture [a kind of corporate IOU] with a face value of ten dollars. But the cost to your client would be less. You go and persuade them that they should go up the ten dollars and we can all go home tonight and have the deal done. Please speak to Boisi, of Goldman, Sachs, about the detailed terms.”

  Liman found Boisi and pulled him aside. He repeated what Tisch had said about an extra ten dollars, which would bring the price of a joint takeover by Gordon and Pennzoil to $120 per share. “My impression from my conversation with Tisch is that while the face amount of this debenture would be ten dollars, its market value might be less.”

  “That’s not what I meant when I talked about this possibility with Tisch,” Boisi said adamantly. The Goldman banker made it clear to Liman that any debenture would have to be worth exactly ten dollars, nothing less, and that a shareholder who received it as compensation over and above the base price of $110 would have to be able to sell it on the market immediately for ten dollars.

  “So we’re talking about Pennzoil really going up from $110 to $120,” Liman said.

  “That’s absolutely right.” Boisi was still unwilling to compromise on price.

  Liman returned to the two-room suite around the corner, informed Gordon and his advisors about the discussions now under way, and then telephoned the Waldorf. He spoke first with Jim Glanville, Liedtke’s investment banker. “They got Liedtke to go from $100 to $110 on the understanding that it would be accepted, and that the museum and Gordon would push for it if there was no better offer on the table,” Glanville said. “There is in fact no better offer on the table and now they are doing what we all feared—they just want us to go to $120 on our own.” Liedtke had said all along that he hated to bid against himself and now, for the second time, he was being asked to do exactly that.

  “Tell them we’ll get back to them tomorrow,” Liedtke said when Liman finally spoke with him that night. “Why don’t you come back over here to the hotel and meet me tomorrow for breakfast at eight o’clock?”

  Liman reported the news to Larry Tisch: they would think about it, but Liedtke did not sound agreeable.

  It was well after midnight when the chocolate cake was gone and the exhausted directors reconvened in Sutton Room II.

  “The board feels very put upon,” Larry Tisch said with sweeping understatement. “We’re being asked to decide the true value of the company. It may be that the board could never decide the true value. I think that Mr. Getty and Pennzoil should enhance the $110 offer to $120 in some form so that Goldman can give a fairness opinion and the board can go forward with a transaction with Pennzoil.”

  There was more discussion about Petersen’s proposal for a self-t
ender and auction sale. The chairman said that he had tried to round up enough votes in favor, but had only managed to secure eleven commitments, not enough to call a formal vote. The impasse remained. Finally, the directors asked all of the advisors to leave the room. Something had to be done. Perhaps if the lawyers and bankers were absent, the directors could speak their minds and reach a decision.

  “We’re in a very difficult position,” Harold Williams began when the door was closed. “I don’t think the board can do nothing. With the existing Pennzoil tender offer for twenty percent at $100 per share, the prospect is that Pennzoil will acquire twenty percent and then it could take control with Gordon and his trust. At the same time, the board is faced with Goldman’s advice that the present offer is not adequate. And the time element is preventing us from taking other action.”

  “We’re talking about a difference of $400 million, cash and paper, between the $110 and $120 proposals,” Tisch said. “That amount should not break a deal of this size. If Pennzoil says no to the $10 increase, then the board would feel very comfortable that it had tried to make a fair deal.”

  “I think a vote should be taken,” Henry Wendt said. He wanted the board to approve Petersen’s self-tender proposal, the one earlier thwarted by the arrival of a chocolate cake.

  “I don’t think the votes are there,” Harold Williams sighed.

  “It is time for a vote,” Chauncey Medberry urged. “Management and the board must take a position. We should each speak our minds and get on the record about all of this.”