Introduction
In the annals of finance, few episodes can match the high drama and intrigue of the Getty Oil takeover. This legendary battle for control of the largest oil company in the world captivated the public’s attention and involved major players like T. Boone Pickens, Ivan Boesky, and Martin Siegel. The story of Getty Oil’s acquisition is a tale of power, greed, and strategic maneuvering that forever changed the landscape of the oil industry.
The Founding and Inheritance
J. Paul Getty, the founder of Getty Oil, built an empire through his keen business acumen and relentless pursuit of oil reserves. However, his passing in 1976 left the company in a state of disarray. The mantle of leadership fell upon his youngest son, Gordon Getty, who had previously shown little interest in the family business, preferring instead to pursue his passion for composing and opera.
Gordon Getty’s Awakening
The death of C. Lansing Hayes Jr., Gordon Getty’s co-trustee, in 1982 sparked a newfound interest in the future of Getty Oil. With his 40% stake in the company, Gordon realized that he could wield significant control and influence. Seeking guidance on how to maximize the company’s value, he turned to the renowned corporate raider, T. Boone Pickens.
Pickens, known for his aggressive tactics in the world of corporate takeovers, advised Gordon on the need for corporate restructuring. He advocated for increasing management’s ownership and aligning their interests with the company’s success. Buoyed by Pickens’ recommendations, Gordon embarked on a journey that would lead to a battle for control.
The Bass Brothers and the Share Buyback Recommendation
Emboldened by Pickens’ advice, Gordon Getty sought additional counsel from the Bass Brothers, renowned takeover specialists. They proposed a share buyback strategy, which involved Getty Oil repurchasing its own shares from the market. This move would increase the company’s stock price and, consequently, Gordon’s control over the company.
As the board of directors became aware of Gordon’s discussions with these prominent figures, tensions began to rise. Fearing that sensitive company information was being leaked, the board decided to have investment bank Goldman Sachs evaluate Getty Oil’s value. Simultaneously, they explored options to dilute Gordon’s holdings or introduce another co-trustee to curb his growing influence.
The Battle Unfolds
The stage was set for an epic battle within the inner sanctum of Getty Oil. In July 1983, Goldman Sachs recommended a $500 million annual stock repurchase plan to boost the company’s stock price. However, this proposal ignited a fierce conflict between the board and Gordon Getty. The board feared that the buyback plan would consolidate Gordon’s control and diminish their authority.
During a tense board meeting, Gordon expressed his desire to “optimize value,” leaving many board members perplexed. Sensing Gordon’s intentions to gain complete control, the board became determined to protect their interests. Aware of Gordon’s attempt to garner the support of the Getty Museum, the board hired a team of specialists to fortify their defenses.
The Black Knight Emerges
Hugh Liedtke, the CEO of Pennzoil, saw an opportunity in the escalating battle for Getty Oil. He became the black knight, tendering a private offer of $100 per share to Gordon Getty. Liedtke’s plan involved acquiring 20% of Getty Oil’s outstanding shares and collaborating with Gordon to gain full control of the company. To sweeten the deal, Liedtke offered to raise the price for the museum’s shares to $120.
Harold Williams, the president of the Getty Museum, was initially inclined to support Gordon Getty’s bid. However, the revelation of Gordon’s attempt to replace the board en masse with his own appointees raised concerns of potential shareholder lawsuits. Williams, recognizing the risks, decided to align with Getty in exploring the possibility of selling the company.
Ivan Boesky’s Entry and Double Cross
In a twist of fate, Ivan Boesky, a prominent arbitrageur and major player in the hostile takeover scene of the 1980s, entered the fray. Boesky purchased a significant amount of Getty Oil stock, which ultimately brought him immense wealth. It later emerged that Boesky received a tip from Martin Siegel, adding another layer of intrigue to the battle for control.
The Board’s Alliance and Triple Cross
Recognizing the futility of their position, the board sought to form an alliance with Gordon Getty against Pennzoil’s bid. They planned to repurchase shares and auction the company to the highest bidder. Under the guidance of the Getty Museum, negotiations ensued, with the board demanding a price higher than Goldman Sachs’ valuation of $120 per share to avoid potential lawsuits.
Amidst this turmoil, Geoffrey Boisi of Goldman Sachs, hoping for a higher offer from a gray knight, refused to endorse Pennzoil’s bid of $110 per share. The board, caught between the risk of lawsuits and dissatisfaction with the offer, rejected it and requested 90 days to explore other options. However, Getty’s response to questioning revealed a hidden agreement with Pennzoil to oust the board if their bid was rejected.
The Triumph of Texaco
Texaco, with its eyes on the prize, found an opportunity to swoop in and become the gray knight in this tumultuous battle. John K. McKinley, Texaco’s chairman, reached out to Boisi for information on the status of the deal. Boisi, clarifying that it was still in principle and not final, unwittingly provided Texaco with the opening they needed. Texaco offered $125 per share, and both Gordon Getty and the Getty Museum sold their shares, granting Texaco a controlling interest.
The Aftermath and Legal Battles
While the acquisition brought an end to the battle for control, it also unleashed a wave of legal battles. Pennzoil, feeling wronged by the outcome, filed a lawsuit and eventually won $11 billion in fines and damages. This victory pushed Pennzoil to pursue Texaco into bankruptcy, resulting in a settlement of around $3 billion.
Conclusion
The story of the Getty Oil acquisition remains an epic tale of power struggles, strategic maneuvering, and the repercussions of greed. It serves as a cautionary tale and a testament to the profound impact that corporate takeovers can have on the financial landscape. As the dust settled, Getty Oil’s shareholders reaped the benefits of increased valuation, but the scars of this battle would forever mark the history of the oil industry.
