The taking of getty oil pennzoil, texaco, and the takeover battle that made history

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The Taking of Getty Oil Pennzoil, Texaco, and the Takeover Battle That Made History Steve Coll For the Colls from Coll Island— Shirley, Robert, Geoff, Dan, and Dorothy CONTENTS PART ONE: AN EMBARRASSMENT OF RICHES The Burglar’s Dilemma A Letter from Ronald Company Man The Innocent on Wall Street At the Bonaventure Friends of the Family The Puppy and the Sledgehammer For the Old Man’s Sake PART TWO: IN PLAY On the Fence 10 Golden Handcuffs 11 Blood on the Floor 12 London 13 A Negotiated Peace 14 “Snookered” PART THREE: WHEN THE FAT LADY SINGS 15 The Bulldog 16 Buyers and Sellers 17 At the Pierre 18 After Midnight 19 Deal-makers 20 An Agreement in Principle 21 A “Manly” Place 22 Bruce the Moose 23 Denouement 24 Big Boys PART FOUR: A JURY OF THEIR PEERS 25 Sore Back Lawyer 26 The Loner 27 Promises 28 Of Sharks and Bear Hugs 29 The Aliens 30 “You Will Decide the Ethics” 31 Citizens 32 The Fall of the Merger Maniacs Epilogue Bibliographical Note Notes Index About the Author OWNERSHIP OF GETTY OIL COMPANY—MAY, 1982 CAST OF CHARACTERS Sarah C Getty Trust Gordon P Getty, Trustee Ann Getty, Gordon’s wife Moses Lasky, Gordon’s attorney Charles “Tim” Cohler, Gordon’s attorney Thomas Woodhouse, Gordon’s attorney Marty Siegel, Investment Banker, Kidder, Peabody & Co J Paul Getty Jr., Gordon’s brother and a beneficiary Vanni Treves, J Paul Jr.’s Counsel J Ronald Getty, Gordon’s half-brother and a beneficiary Anne Catherine Getty, Gordon’s niece and a beneficiary Claire Eugenia Getty, Gordon’s niece and a beneficiary Caroline Marie Getty, Gordon’s niece and a beneficiary Tara Gabriel Galaxy Gramaphone Getty, Gordon’s nephew and a remainderman Seth Hufstedler, Guardian for Tara J Paul Getty Museum Harold Williams, President Harold Berg, Chairman of the Board of Trustees Martin Lipton, Outside Counsel Patricia Vlahakis, Outside Counsel Jay Higgins, Investment Banker, Salomon Brothers Getty Oil Company Sidney R Petersen, Chairman and Chief Executive Dave Copley, General Counsel Barton J Winokur, Outside Counsel Robert Miller, President Geoff Boisi, Investment Banker, Goldman, Sachs & Co Henry Wendt, Director John Teets, Director Laurence Tisch, Director Harold Stuart, Director Chauncey Medberry III, Director Herbert Galant, Outside Counsel Pennzoil Company J Hugh Liedtke, Chairman and Chief Executive Baine Kerr, President James Glanville, Investment Banker, Lazard Freres & Co Arthur Liman, Outside Counsel Perry Barber, General Counsel Moulton Goodrum, Outside Counsel Joe Jamail, Trial Counsel John Jeffers, Trial Counsel Irv Terrell, Trial Counsel Texaco Inc John McKinley, Chairman and Chief Executive Al DeCrane, President James Kinnear, Vice Chairman William Weitzel, General Counsel Bruce Wasserstein, Investment Banker, First Boston Corp Joseph Perella, Investment Banker, First Boston Corp Morris Kramer, Outside Counsel Richard Miller, Trial Counsel Richard Keeton, Trial Counsel Others Corbin J Robertson, Jr., Quintana Petroleum T Boone Pickens, Mesa Petroleum Kurt Wulff, Oil Industry Analyst William Tavoulereas, President, Mobil Oil Richard Lawler, Jury Foreman James Shannon, Juror Theresa Ladig, Juror Shirley Wall, Juror Laura Johnson, Juror Anthony Farris, Judge Solomon Casseb, Judge PART ONE AN EMBARRASSMENT OF RICHES McKinley’s meeting with, 376–377 morality rhetoric and, 389–390, 431–432 motivations and methods of, 247–248 Nixon and, 248 as Pennzoil v Texaco witness, 416, 419–423 physical appearance of, 243–244 in post-trial negotiations, 473–474 South Penn and, 246 takeover proposals considered by, 249–252 in United Gas takeover, 246–247 Liman, Arthur, 266, 267–268, 299–301 denouement and, 371–372 at emergency takeover directors meeting, 300, 308, 314–317, 320–322 in Liedtke/Getty summit, 275–276, 280–281 merger expertise and, 386–387 as Pennzoil v Texaco witness, 416, 419, 437 in takeover press release preparations, 324 Lipton, Martin, 193, 214, 477–478 background of, 194–196 as corporate statesman, 370–371 at emergency takeover directors meeting, 288–290, 308–310, 315–318 final merger agreement and, 328 Liedtke/Getty summit deal and, 275–276, 280–283 in London meetings, 204–209 McKinley and, 354–355, 356 Pennzoil takeover attempt and, 258, 264–265 Pennzoil v Texaco testimony by, 441–447 in self-tender proposal, 272 in standstill agreement, 215–224 takeover press release preparations and, 324, 328 as takeover specialist, 196–197 Tara Getty’s lawsuit and, 235–238 in Texaco negotiations, 359–361, 364–365, 367, 370–371 Wasserstein and, 353 Loews Corporation, 196, 271, 272 Londean, Hank, 325 Long, Augustus C., 337, 338 Luke, Norman, 249 McGullicuddy, John, 59 McKinley, John K., 312, 373 background of, 338 Conoco takeover and, 341–342 damages issue and, 456 DeCrane and, 340 in Getty takeover attempt, 342–343 Glanville’s meeting with, 375–376 imperial style of, 337–338 in initial takeover meeting, 353–354 Liedtke’s meeting with, 376–377 Lipton and, 354–355, 356 Morgan Stanley and, 344–345 Mukluk project and, 340 negotiated settlement and, 407–408 reforms under, 339 in takeover negotiations, 362–367 McKinley, Virgil, 338 Manufacturers Hanover Trust, 59, 60–61 MCI v AT&T, 408 Medberry, Chauncey, III, 59, 60, 137, 147–148, 179, 182, 185–186, 225, 286, 291, 302, 312, 319 at emergency takeover directors meeting, 303–306, 318 merger mania, 48, 155 Merger Mania (Boesky), 478 Miller, Keeton, Bristow & Brown, 400, 403, 475 Miller, Richard: background of, 400–403 Boisi and, 436–437 closing argument by, 457, 458–459 as confident, 408–409 damages issue and, 408, 456, 468–469 Farris and, 433–435 in Great Zipper Incident, 422–423 Jamail and, 407, 409–410, 423 in jury selection, 413–414 Liedtke cross-examined by, 420–423 Lipton’s testimony and, 441, 447 Terrell and, 404–407 at Texaco board meeting, 450 Winokur’s testimony and, 427–435 Miller, Robert, 37–38, 40–41, 46, 48–49, 137, 297 Mobil Oil, 47, 55, 56 Montgomery Ward, 55 Morgan Stanley & Company, 104, 116, 196, 344 Mukluk project, 340 Municipal Assistance Corporation, 196–197, 258 Murphy, Thomas, 355 Musick, Peeler & Garrett, 90 Nader, Ralph, 345 National Football League, 36 Nelson, Willie, 390, 411 Neutral zone oil reserves, 11, 42 New York City financial crisis, 196–197, 258 New York Times, 249, 421 Nickens, J C., 430, 433, 456–457 Nixon, Richard, 243, 248 North Sea oil reserves, 42 Norton Simon conglomerate, 153 Nutten, Wesley, 122–125 Oakland Raiders, 36, 39 O’Donnell, Dan, 198 oil industry: collusion in, 335–336 diversification in, 55–56 exploration spending in, 54–55 megacorporations in, 109–110 public perception of, 335–336 royalty trusts in, 50 stock prices in, 50–52 U.S reserves in, 52–53 O’Melveny & Meyers, 125–126 OPEC, 51, 53, 335, 336, 337, 339 Osterkamp, Horst, 26 Palmer, Arnold, 257, 335 Papamarkou, Alexander, 46–47, 269 Paul, Weiss, Rifkind, Wharton & Garrison, 266, 324, 325, 333, 386–387 Pennzoil Company, 243 as aggressor company, 336 antitrust suits initiated by, 383 breach-of-contract suit brought by, 385–387 entrepreneurship cult in, 247–248 in liquidation state, 248–249 public relations work for, 324–325 Pennzoil/Getty takeover attempt advisors’ meetings on, 266–269, 323–331 agreement in principle in, 326–327, 329–331, 350–351 attorneys’ delay in, 357–358 “Christmas surprise” in, 252–253 direct meeting in, 267–269 divorce clause in, 267 ERC problem in, 358 fairness opinion in, 292–293, 300 final merger agreement in, 325, 332–335 four-sevenths plan in, 278, 284, 292 Getty employees and, 333 Getty family lawsuit and, 262–263, 358 initial proposals for, 249–252 Liedtke/Getty summit on, 274–283 museum shares in, 259–260, 279, 281–282 Pennzoil directors in, 253–255 press release on, 324–331 public stockholders in, 323–324, 300–331 self-tender defense in, 269–273 share price in, 261–262, 279–284, 292, 322 “split the blanket clause” in, 278 subsidiaries in, 253 tactical lawsuits filed in, 383–384 tender offer in, 252 Texaco merger negotiations and, 375–377 Pennzoil v Texaco: agreement in principle issue in, 437–438 appeals in, 475–476 Boisi’s testimony in, 436–441 charge to the jury in, 452–457 closing arguments in, 457–461 confrontational mood in, 398–399, 404–407 contract issue in, 409, 453–455 damages in, 455–457, 467–469 documentary evidence in, 417–418 Gordon Getty in, 416, 421, 423–425, 429–430, 438 Great Zipper Incident in, 422–423 indemnities issue in, 418 judge changed in, 448 jury deliberations in, 462–469 jury selection in, 412–415 Kerr’s testimony in, 418–419 knowing interference issue in, 409 lawyers in, 398–405 Liedtke’s testimony in, 416, 419–423 Lipton’s testimony in, 441–447 morality rhetoric in, 389–390, 431–432 New York law selected for, 408–409 pace of, 449 Pennzoil’s affirmative case in, 416–425 post-trial settlement negotiations in, 473–474 pre-trial negotiated settlement attempted in, 407–408 Texaco’s defense in, 426–447 Texaco’s executives’ testimony in, 449–452 verdict in, 469–472 Winokur’s testimony in, 427–435 Perella, Joseph, 346, 347, 372, 375 Gordon Getty and, 352, 354 in initial takeover meeting, 348–354 Liedtke and, 350–351 Perry, Claire Getty, see Getty, Claire Petersen, Nancy, 32, 33, 56 Petersen, Sidney, 5, 9, 136–138, 170, 373 background of, 30 in Bonaventure meeting, 76–83, 86 confidential company information and, 67–70 at emergency takeover directors meeting, 288, 290–292, 294–295, 297–299, 301, 305, 309 executive style of, 31–33 golden parachute for, 115, 119, 374 Goldman study and, 101–109 Gordon Getty and, 33–35, 40–50 in guardian ad litem plan, 129–131 Hays and, 13–14, 18 investment houses and, 48–50 joint takeover agreement and, 283–286 J Paul Getty Jr and, 229–230 at July directors meeting, 138, 143–150 Lasky and, 27–30, 35, 171 LBO proposal and, 141–143, 149–150, 152–162 Liedtke and, 251 Liedtke/Getty summit and, 277, 278 in London meetings, 192–193, 197–209 McKinley and, 373, 374 in management reorganization meeting, 35–40 at Pebble Beach directors meeting, 179–189 Pennzoil/Getty takeover attempt and, 254, 256, 261–265 in Pennzoil v Texaco, 423, 428, 429–430 Pickens and, 52, 53–57 Pickens takeover proposal and, 113–118 raiders and, 57–61, 66, 73–76 retirement of, 397 royalty trust and, 62–65 self-tender proposal and, 269–273 in sole trustee challenge, 87–100 in standstill agreement, 218–224 stock buy-back program and, 148–149 in supermajority plan, 171–178 Tara Getty lawsuit and, 232–238 Teets and, 47 Texaco takeover and, 332, 342 in Tidewater Oil, 30–31 treasury shares and, 191 Williams and, 141–142 Wulff study and, 110, 111 Phillips Petroleum, 111–112 Pickens, T Boone, Jr., 50 background of, 111–112 Getty takeover proposal by, 113–118, 149 greenmail tactics of, 57 Liedtke and, 248 in oil takeovers, 48, 52–53, 112–113 personal style of, 112 Petersen and, 52, 53–57 Wulff and, 109, 111 poison pill takeover defense, 194 Quintana Petroleum, 58, 84 Reagan, Ronald, 48, 109, 260 265 Reliance Electric, 55 Robertson, Corbin, Jr., 58, 59–66, 69, 74, 83, 157 Robertson, Greg, 143, 145, 147 Rockefeller Standard Trust, 336 Rohatyn, Felix, 196–197, 258, 266 Roosevelt, Franklin D., 479 Roth, Jack, 276 Royal, Darrell, 411 royalty trusts, 50–51, 62–65 Salomon Brothers, 196, 281, 344, 375 Sarah C Getty Trust: appraisal rights in, 163 creation of, 15 Georgettes’ interest in, 120, 121 Getty Oil stock under, 5, 23 guardian ad litem plan for, 121–131 income from, 15, 22–23 Isaacs cotrustee discussion on, 120–121 as largest legacy, 5–6 Ronald Getty’s suit against, 23–27 share dividends in, 24 sole trusteeship challenge in, 87–100 trustees for, 5–6, 8–9, 14–16, 26–27, 33–34 value of, 14 Wulff study and, 110–111 Sarofim, Fayez, 268–269 Saudi Arabia, 332 Schlaet, Arnold, 337 Seagram’s corporation, 341 Securities and Exchange Commission (SEC), 118, 141, 248, 420, 478 Security Pacific National Bank, 22, 25, 38 Bank of America and, 121 guardian ad litem plan and, 121, 122–125 as Sarah C Getty Turst cotrustee, 15–17 in sole trusteeship challenge, 89–95 Seven Sisters, 336 Shannon, Jim, 464, 465, 466–467, 471 Shapiro, Stuart, 213 Shell Oil Company, 314, 350 Siegel, Martin, 156, 216–219 Boesky and, 478–479 denouement and, 371–372 at emergency takeover directors meeting, 288, 292, 294, 316–317, 321 fees earned by, 375 joint takeover agreement and, 284–285 in Liedtke/Getty summit, 274, 276–280 Pennzoil takeover attempt and, 257–258, 267–268 personal style of, 212–213, 346 “range of values” presented by, 363 in self-tender proposal, 269–273 in standstill agreement, 221 in takeover press release preparations, 324, 326 in Texaco negotiations, 362, 364, 367 Skadden, Arps, Slate, Meagher & Flom, 194, 355, 386–388 Smith, Robert, 92 Smith Barney, 104 SmithKline Beckman Corporation, 138 Sotheby’s, 237 South Penn Oil Company, 246 Spain, 42 Spindletop oil field, 57, 337 Standard Oil, 337 Standard Oil of California, 314 standstill agreement, 206–209, 215–224 Stuart, Harold, 261, 291, 292, 294, 296–297, 303, 306, 309, 319 supermajoriry plan, 171–178, 182–185 Supreme Court, U.S., 473, 475–476 Taubman, Alfred, 237, 297, 299, 319 Tavoulareas, Bill, 47–48 Taylor, Harris, 95 Teets, John, 47, 49, 138, 233, 286, 307 at emergency takeover directors meeting, 304, 307 at July directors meeting, 145, 148–149 Terrell, Irv, 384, 385, 400, 403, 409, 410, 421, 426, 429 background of, 399 Boisi cross-examined by, 437–441 closing argument by, 457–458 DeCrane cross-examined by, 451–452 in jury selection, 414, 415 Miller and, 404–407 trial role of, 416 Winokur cross-examined by, 432–433 Texaco/Getty takeover: antritrust issues in, 383–384 breach-of-contract suit unanswered in, 386–388 Getty employees and, 374, 397 Getty family and, 374–375 golden parachutes in, 397 Gordon Getty’s shares in, 351–352 indemnity issue in, 360 initial contacts in, 312–314, 331–332, 340–341 initial meeting in, 348–354 injunction requested against, 385 investment bankers’ fees in, 375 legal obstacles in, 363 Liedtke’s reaction to, 372–378 operations integrated in, 397 Pennzoil option in, 350–351 reserves in, 341 share price in, 360–367 squeeze strategy in, 351–352 tactical lawsuits filed in, 383–384 terms negotiated in, 359–362 Texaco directors in, 352–353, 355–356 willingness issue in, 354 see also Pennzoil v Texaco Texaco, Inc., 312 as autocratic company, 337–338 downstream operations in, 339 exploration programs at, 339–340 friendly merger policy of, 340–342, 348–349, 352, 368 post-trial problems of, 473–478 public image of, 336–337 triumvirate in, 338 Texas Company, 337 Tidewater Oil Company, 22, 30–31, 79 Time, 271 Tisch, Laurence, 196, 237, 312, 317, 436 at emergency takeover directors meeting, 297–307 Pennzoil v Texaco testimony by, 449 in self-tender proposal, 271–273 Texaco takeover and, 354, 355, 363–366 Wasserstein and, 347 Tisch, Robert, 196, 271 Topping, Norman, 39, 137 Treves, Vanni, 95, 98–99, 120, 192, 210–211, 229–230, 231 Tribe, Larry, 473 United Gas, 246–247 Vinson & Elkins, 382, 399, 403 Vlahakis, Patricia, 204, 207, 208, 284, 324–328, 333, 358–359, 441, 445–446 von Bülow, Claus, 96 Wachtell, Lipton, Rosen & Katz, 194, 269, 284, 386 Wall, Shirley, 464, 466–467 Wall Street Journal, 326 Warren, Robert, 122–123 Wasserstein, Bruce, 155–156, 365, 375, 436 background of, 345–346 as “chumming” for merger clients, 347 in initial takeover meeting, 353, 356 personal style of, 346 squeeze strategy and, 352 in terms negotiations, 361 Watergate burglary, 248 Weinberg, John L., 105, 106, 107, 312, 342–343, 355, 356 Weinberg, Sidney J., 104, 105 Weitzel, William, 355, 359, 360–365, 471 Wendt, Henry, 44–45, 138, 179, 181, 182, 185, 233, 234, 265, 286, 292, 293–295, 297, 301, 312, 373 Whitehead, John C., 105–109 Williams, Harold, 139–143, 148, 152, 180, 181, 187, 188–189 background of, 153 at emergency takeover directors meeting, 288–290, 301–303 Getty board nomination for, 179, 235 in LBO proposal, 139–143, 152–162 Lipton and, 193–194 in London meetings, 197, 198–209 Pennzoil takeover attempt and, 259, 263–265 as SEC chairman, 141, 153 in standstill agreement, 219–224 Tara Getty’s lawsuit and, 237–239 Wilson, William, 260 Winokur, Barton J., 70–73, 74, 151–152, 230 background of, 70–71 Boisi and, 156 in Bonaventure meeting, 76–83 at emergency takeover directors meeting, 288, 289, 291, 292, 295, 298–299, 310, 317–318 final merger agreement and, 333, 357–358 Goldman study and, 106 in guardian ad litem plan, 122, 126, 129 in handcuffs issue, 165–166 in Isaacs cotrustee discussions, 120–121 joint takeover agreement and, 284–286 in LBO proposal, 154–168 in London meetings, 193, 197–209 neutralization proposal by, 184–185 Pennzoil takeover attempt and, 261–263, 265 in Pennzoil v Texaco, 423–424, 427–435, 451 in Pickens takeover meeting, 116 in self-tender proposal, 269–273 in sole trusteeship challenge, 87–100 in standstill agreement, 215–224 in supermajority plan, 171–178, 182–185 in takeover press release preparations, 324, 327 Tara Getty lawsuit and, 233–237 ultimatum proposal and, 192 Wulff study and, 110, 111 Woodhouse, Tom, 25, 64 at emergency takeover directors meeting, 288 Goldman study and, 102–106 in handcuffs issue, 165–166 LBO proposal and, 142, 143, 153–168 in Liedtke/Getty summit, 276 in London meetings, 198–209 in Pennzoil takeover attempt, 266 Siegel and, 213–215 in supermajority plan, 172–178 in Texaco negotiations, 362, 363, 367 Wulff, Kurt, 53, 109–111, 113, 127, 136, 148 Xerox, 55 Zapata Petroleum, 245 About the Author Steve Coll is a staff writer at the New Yorker , the dean of the Columbia Journalism School, and the bestselling author of seven books Previously he served as president of the New America Foundation and worked for two decades at the Washington Post, where he won the Pulitzer Prize for Explanatory Journalism for a four-part series on the Securities and Exchange Commission during Ronald Reagan’s presidency The award-winning series became the basis for Eagle on the Street (1991), coauthored with David A Vise Coll’s other books include New York Times Notable Book The Deal of the Century (1998); Ghost Wars (2004), winner of the Pulitzer Prize for General Nonfiction; The Bin Ladens (2009), winner of the PEN/John Kenneth Galbraith Award for Nonfiction; and Private Empire (2012), winner of the Financial Times and McKinsey Business Book of the Year Award All rights reserved, including without limitation the right to reproduce this ebook or any portion thereof in any form or by any means, whether electronic or mechanical, now known or hereinafter invented, without the express written permission of the publisher Copyright © 1987 by Steve Coll Cover design by Ian Koviak ISBN 978-1-5040-4504-9 This edition published in 2017 by Open Road Integrated Media, Inc 180 Maiden Lane New York, NY 10038 www.openroadmedia.com STEVE COLL FROM OPEN ROAD MEDIA Find a full list of our authors and titles at www.openroadmedia.com FOLLOW US @OpenRoadMedia ... INBOX EVERY DAY! The Taking of Getty Oil Pennzoil, Texaco, and the Takeover Battle That Made History Steve Coll For the Colls from Coll Island— Shirley, Robert, Geoff, Dan, and Dorothy CONTENTS... the direction of Getty Oil Company and the power of the Sarah Getty Trust’s stock Lansing’s bombastic personality had, in effect, postponed the impact on the company and the trust of J Paul Getty s... partially crippled mother, Sarah It was then four years since the death of George Getty, J Paul’s father and the founder of Getty Oil Company, and Sarah was suspicious and skeptical of the way her son