The Getty Oil takeover saga was a gripping episode in the world of finance. After the death of J. Paul Getty, his youngest son, Gordon Getty, assumed control of the company, which ultimately led to a series of contentious events. The story involves prominent figures like T. Boone Pickens, Ivan Boesky, and Martin Siegel, and it culminated in Texaco's acquisition of Getty Oil, triggering a lengthy legal battle with Pennzoil.
Basics
In 1976, J. Paul Getty, the industrialist and founder of Getty Oil, passed away, leaving his company in financial turmoil. The Getty family, who owned the company, was plagued by internal disputes. The board of directors selected J. Paul Getty's youngest son, Gordon Getty, as a co-trustee. Gordon, primarily interested in composing and opera, was initially an unconventional choice. However, C. Lansing Hayes Jr., the co-trustee, died in 1982, resulting in Gordon Getty taking control of 40% of Getty Oil. This shift ignited his interest in the company's future.
Getty Oil's Stock Price Improvement Efforts
Gordon Getty, although uninterested in day-to-day operations, sought to improve Getty Oil's stock price. He engaged Wall Street professionals, including corporate raider T. Boone Pickens, without consulting the board. This action raised suspicions within the board.
Sidney Petersen, the chair of Getty's board, was baffled by Getty's disclosure of sensitive company information to Pickens. Getty's secretive conversations compelled the board to take defensive measures. They had investment bank Goldman Sachs evaluate Getty Oil while exploring options to rein in Gordon Getty.
Conflict and Tensions Escalate
Goldman Sachs recommended a $500 million annual stock repurchase plan to boost the stock price. However, this proposal strained relations between the board and Getty, as it could have given Gordon Getty majority control. The ensuing conflict intensified, with Getty expressing a desire to "optimize value," causing confusion among the board members.
Recognizing Getty's potential to oust them, the board sought a way to dilute his holdings or appoint a new co-trustee. The situation worsened when Getty attempted to replace all Getty directors during a meeting with museum president Harold Williams, escalating tensions.
A Targeted Takeover
The market perceived Getty Oil as a takeover target due to the legal disputes and infighting. Hugh Liedtke of Pennzoil made a private offer to the Getty at $100 per share, intending to gain control with support from the Getty Museum. Ivan Boesky, an arbitrageur, acquired Getty Oil stock on Siegel's tip.
The Board's Dilemma and Wall Street Pressure
The board sought to align with Getty against Pennzoil but intended to buy back shares and auction the company. Williams insisted on board approval. Liedtke increased his bid to $110 per share, leading to a dilemma for the board. Goldman Sachs' refusal to endorse this offer complicated matters, as they hoped for a higher bid to benefit their fees.
The board rejected the bid, suspecting a secret agreement between Getty and Pennzoil to fire the board if the deal failed. This revelation soured the atmosphere, but Wall Street pressure mounted for a resolution.
The Aftermath
Liedtke agreed to raise the offer to $112.50 and additional payments in the future. However, Texaco's John K. McKinley emerged as a "gray knight" with an offer of $125 per share, ultimately acquiring Getty Oil. Liedtke's celebration turned to fury, marking the conclusion of the bitter takeover saga.
Conclusion
The Getty Oil-Texaco deal, marred by conflict and legal battles, remains one of the most contentious takeover battles in Wall Street history. It led to benefits for Getty Oil's shareholders, with their holdings increasing by over 50%. However, Pennzoil filed a lawsuit and was awarded substantial fines and damages, pushing Texaco into bankruptcy. The dispute persisted in the courts until a settlement of approximately $3 billion was reached. The Getty Oil saga exemplifies the complex dynamics of financial reengineering, showcasing how it can both benefit and harm stakeholders. While it significantly improved shareholder value, the tumultuous journey underscored the challenges and controversies associated with corporate takeovers.