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The Deal: How Getty Ended Up With Texaco

January 19, 1986|DEBRA WHITEFIELD | Times Staff Writer

BACKGROUND OF A BATTLE In the two months since a Houston jury returned an $11.1-billion verdict against Texaco in a lawsuit brought by Pennzoil, many have wondered just what the panel heard during 17 weeks of trial to persuade it that Texaco's alleged interference in Pennzoil's planned takeover of Getty Oil warranted such damages.

In a search for answers, Times Staff Writer Debra Whitefield reviewed the trial transcript--all 25,445 pages--plus various depositions, trial briefs, exhibits and motions. She also conducted interviews with lawyers, jurors and the judge.

The two stories below are a reconstruction of how, through a complex series of events, Getty Oil came to be acquired by Texaco and of how Texaco apparently fumbled in defending itself against the Pennzoil lawsuit.

J. Hugh Liedtke had been watching with growing fascination as the power plays at Getty Oil escalated into full-scale war.

But when the Pennzoil chairman read an account of Gordon Getty's retaliation for shabby treatment by Getty Oil's board a few weeks earlier, his fascination gave way to business interest. "In that mess," he thought, might be an opportunity for Pennzoil.

Liedtke commissioned a confidential study. At $100 or $110 a share, he wanted to know, could Pennzoil swing a partial purchase of Getty? And was the Los Angeles-based oil company--whose stock was then trading around $80 a share--worth that much?

Pennzoil would get a bargain, the word came back, even at $120 a share, and the deal was "doable" for even more. Liedtke, alarmed at his staff's enterprise, ordered the $120 evaluation destroyed. "I don't want any $120 walking around," he told Senior Vice President Clifton H. Fridge.

Armed with his staff's reports, Liedtke got his board's permission on Dec. 19, 1983, to buy up to 48% of Getty's stock. At last, he thought, a chance for medium-sized Pennzoil to take a "giant step forward" into the oil industry's big time.

'Christmas Surprise'

Eight days later, he made his move. Not knowing whether the feuding Getty directors would view Pennzoil as a threat or a blessing, Liedtke chose an approach that Texaco lawyers would later call "The Christmas Surprise."

Pennzoil bought 590,000 shares of Getty Oil's stock on the open market. Then late in the day on Tuesday, Dec. 27, it launched a tender offer to raise its holdings to 20%. Its price: $100 a share.

But as Liedtke testified later, "we were after assets," not stock.

Getty's assets were an oilman's dream. A 2.3-billion-barrel stockpile of proven oil reserves, most of them in California's prized Kern River Field near Bakersfield.

But to get at those assets, Pennzoil needed to strike a deal for a lot more than 20% of the Getty stock. So, Pennzoil director William Wilson, U.S. ambassador to the Vatican, agreed to contact Getty Oil's two largest stockholders--Malibu's J. Paul Getty Museum and the Sarah C. Getty Trust, which held stock for the Getty family members. Between them, they controlled 52% of Getty Oil.

Majority control of a major public corporation by two shareholders is an anomaly in American business. One more bizarre twist in this case. And an important fact as the story unfolded.

Agreed to Talk

Wilson reached Gordon Getty at his home in San Francisco on Dec. 28 and paved the way for Liedtke to call. "We want to work with you," Liedtke said. Getty made no promises, except to talk to museum President Harold Williams.

Liedtke also talked that day to Getty Oil director Harold Stuart, who called to say he was "delighted about the offer."

Not everyone shared that enthusiasm.

Barton J. Winokur--an outside lawyer for Getty Oil, who Pennzoil would later dub Backdoor Bart for his role in the Getty board decision to join a lawsuit seeking to hamstring Gordon Getty--arranged a conference call with other Getty Oil advisers and company Chairman Sidney R. Petersen as soon as he heard the news. All agreed that it was a bad offer and had to be blocked.

The price, they reasoned, was at least $20 a share too low. But there was a bigger threat. If Pennzoil drew in 20% or 30% of the outstanding stock, as seemed likely, the Houston company could join forces with Gordon Getty. Together, they could "operate the company any way they wanted for their own benefit and perhaps even squeeze out the minority," Winokur said later.

When Winokur reached Getty Museum adviser Martin Lipton later that night, Lipton's reaction was the same. It had to be stopped. But how?

Problem With Approach

In meetings the next day, the advisers kept returning to the same answer: A self-tender by the company for most of its outstanding shares. There was just one problem with that approach: Gordon Getty.

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