Getty oil acquisition fiasco

Few episodes in the financial world can provide such high drama as the acquisition of Getty Oil. This is the largest acquisition in history, involving major players such as American financier T. Boone Pickens and Ivan Boesky and Martin Siegel, who were notorious for insider trading in the 1980s.

Key points

  • J. Paul Getty, the founder of Getty Oil, died in 1976 and fell into financial chaos.
  • Gordon Getty, Getty Oil’s heir, tried to gain control of the company and increase the company’s stock price when the company’s stock price was $50 per share.
  • Getty asked T. Boone Pickens, a corporate predator who recommended corporate restructuring, and Bass Brothers, an acquisition expert who recommended stock buybacks.
  • Getty and the board were embroiled in an ugly takeover battle, and both sides used various strategies to obtain a controlling stake in the company.
  • In 1984, Texaco agreed to acquire Getty Oil, snatching the company from rival Pennzoil, and laying the foundation for a legal battle. In the end, Texaco filed for bankruptcy and owed Pennzoil billions of dollars in losses.

Death and opera

When J. Paul Getty, an American industrialist and founder of Getty Oil, died in 1976, his company fell into financial chaos. The Getty Oil Company is family owned, but members of the Getty family often fight each other when they work together. With the help of Getty Oil’s board of directors, Gordon Getty, the youngest son of J. Paul Getty, was selected as the co-trustee.

Gordon Getty (Gordon Getty) seems to be the ideal choice, because despite his personal position in the company, he has always been more interested in composition and opera than in the family business. All this changed with the death of his co-trustee C. Lansing Hayes Jr. in 1982. Suddenly, Getty controlled 40% of Getty Oil, which inspired his interest in the company’s future.

Meet T. Boone Pickens

Although Getty wanted to control Getty Oil, he said he did not want to participate in the actual daily operations. When he decided to help the board find a solution to its biggest problem, it became obvious: Getty Oil’s stock price is sluggish. The company’s underground oil is worth about $100 per share, but the company strives to keep its stock at around $50. Without consulting the board of directors, Getty personally discussed with Wall Street professionals to revive Getty Oil’s stock price. The professionals he selected were leveraged buyout experts and acquisition artists, including corporate predator T. Boone Pickens.

Pickens told Getty that the time is ripe for Getty Oil to carry out the corporate restructuring that swept Wall Street. Pickens hopes that Getty will increase management’s ownership through financial restructuring, allowing managers to start thinking and acting like owners. Gordon Getty spoke highly of this proposal and held a meeting between Pickens and Getty Board Chairman Sidney Peterson. (Why does Getty have these troubles? There are many reasons why the company and major shareholders care about its stock price, including concerns about possible hostile acquisitions.)

Peterson was shocked by Getty’s sharing of sensitive company information with a famous attacker and forced Pickens to sign an agreement stating that he would not actively bid to acquire the company. This will be the first step taken by many companies to defend against unnecessary acquisitions.

When Peterson left the meeting, he was convinced that Getty was trying to control the company. Gordon Getty advanced this view during a meeting with another group of hostile takeover experts, Bass Brothers, who recommended stock buybacks. In order to prevent Getty from leaking company secrets to everyone on Wall Street, the board of directors agreed to let the investment bank Goldman Sachs value Getty Oil. At the same time, Peterson began to find a way to dilute Getty’s shares or appoint another co-trustee to control him.

Battle of the Inner Temple

In July 1983, Goldman Sachs recommended Getty Oil to launch a $500 million annual stock repurchase program. On paper, this is a reasonable conclusion, but in reality, it pits the board of directors and Getty against each other. The repurchase will allow Getty to control the company by increasing its 40% stake to more than 50% of the controlling interest. At this point, the board’s concerns about Gordon Getty go far beyond weakness in stock prices. At the meeting, Getty famously said: “What I really want is to find the best way to optimize value.” After a disturbing silence, a board member said: “Gordon, you may know what you just said, but no one else in the room knows.”

The bill was rejected, and the board of directors and Getty were embroiled in one of the ugliest battles in the company’s history. Getty knew that he could overthrow the board of directors if he managed to get 12% of the stock controlled by the Getty Museum on his side. He arranged a meeting with Harold Williams, the director of the museum. Williams was worried that Getty was trying to play with power. He hired a corporate lawyer who specializes in attacker defense.

As Williams feared, Getty came to the meeting with his godfather’s proposal. Getty prepared a document stating that the trust and museum will remove all Getty directors and replace them. Gordon Getty will appoint new directors. In return, Getty will buy the museum’s shares at a very favorable price. Williams’ lawyers foresee that if such transactions are signed, shareholders will face many years of litigation, so Williams abstained. Soon after, the Getty board found out that Getty was trying to get rid of them collectively, and they hired a team of experts to help build acquisition defenses.

The Black Knights and Bosky enter the field

In order to fight against the board team, Getty turned to Martin Siegel from Kidder and Peabody. The three parties-the board of directors, the museum, and Gordon Getty-were persuaded to sign a one-year shutdown agreement that prohibited any of them from selling their shares. On the day the agreement was approved, the board waited for Getty to leave the room, then announced that they had found Getty’s family and filed a lawsuit against Gordon Getty. Getty’s 15-year-old nephew Tara Gabriel Galaxy Gramophone Getty (Tara Gabriel Galaxy Gramophone Getty) will sue his uncle to force the introduction of a new co-trustee. This despicable strategy persuaded Williams to stand on Getty’s side and try to sell the company.

This lawsuit sent a clear signal to the market that the time for Getty Oil to be acquired is ripe. Hugh Liedtke of Pennzoil became the black knight by making a private offer of $100 per share to Getty. The intention is that Liedtke will buy 20% of the outstanding shares, obtain a seat on the board of directors, buy shares in the museum, and cooperate with Getty to reach a deal that will give Getty and him complete control of the company. If the price of the museum stock increases to $120, Williams agrees in principle. Liedtke set his bidding time on December 27, 1983-this time most of his games will be on vacation.

At about the same time, arbitrageur Ivan Boesky bought a large amount of Getty Oil stock; it later brought him huge wealth. It turned out that the tip came from Marty Siegel.

Ivan Boesky was a major participant in the junk bond and hostile takeover boom in the 1980s. He was the role played by Michael Douglas in the 1987 film Gordon Gekko (Gordon Gekko). One of the sources of inspiration Wall Street.

Double cross

The board hopes to form an alliance with Getty to oppose Pennzoil’s bid. They knew they were doomed to fail, so they wanted to buy back the stock and then auction the company to the highest bidder. In board meetings attended by all lawyers and investment bankers, the museum acts as an arbitrator, and Williams refuses to sell to anyone unless the board agrees to the transaction.

Liedtke’s bid for outstanding shares increased to $110 per share. This puts the board in a dilemma. Refusing to offer a transaction above the current price would mean shareholder lawsuits, but the sale may also trigger a lawsuit, selling at a price lower than the $120 per share valued by Goldman Sachs for the company. Goldman Sachs representative Geoffrey Boisi rejected Signed a document stating that $110 was a reasonable offer, at least in part because he also hoped that a gray knight would suddenly appear at a higher offer, thereby incurring bank acquisition costs for his company.

The board of directors rejected the bid and asked to know within 90 days what the company can obtain on the open market. Getty refused. The board directly asked him whether he had a secondary agreement with Pennzoil that the board did not know about. Getty replied that he needed to talk to his advisers before answering. All the lawyers in the room asked this question, and it was revealed that if the transaction is rejected, Getty and Penzoir have agreed to try to fire the board. The atmosphere in the room quickly deteriorated, but at this time, the entire Wall Street, regardless of internal discord, was pushing for a big deal, and all participants felt the pressure.

Triple cross

Liedtke was told that the transaction would be completed for $120, but he only increased the offer to $112.50 and added an additional $5 in a few years.Reached an agreement in principle, And all parties agree in principle, Illustrates this point.

At the same time, Boisi found his grey knight in the form of John K. McKinley, chairman of Texaco. Texaco’s management contacted Boisi and asked if there was a deal. Boisi stated that this was achieved in principle, but not final. Texaco’s team then asked how much they should provide. Texaco offered $125 per share, and the museum was sold to Texaco, as did Gordon Getty. Texaco now has a controlling stake. Litke, who thought the deal was completed and celebrated, was very angry.

Bottom line

The Getty Oil deal with Texaco is one of the ugliest takeover battles in Wall Street history. Nonetheless, the results are beneficial to all shareholders of Getty Oil. However, this is not really the end, because Pennzoil filed a lawsuit and eventually received a fine of 11 billion U.S. dollars and damages. Pennzoil further demanded Texaco’s bankruptcy, and this fierce battle continued in court until a settlement of approximately US$3 billion was reached.

The Getty Oil legend is an example. In this case, financial reengineering can help—remember, Getty Oil investors have seen their underperforming holdings increase by more than 50%—and Got hurt. Management always needs to be reorganized and reorganized, but it may not be the type of Getty Oil.


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