HOSTILE TAKEOVERS: In our modern capitalistic world with
centi-billionaires and multi trillion-dollar mega cap companies, hostile takeovers are a dime
a dozen. Elon Musk just had one last year with Twitter. More times than not though, such hostile
takeovers don’t actually benefit the company being taken over all that much. Sometimes, the acquirer
will dissect and keep the desirable parts of the company and viciously shutdown or sell off the
other parts as was the case with Google and Motorola. Google tookover much of Motorola’s
17,000 patents and sold the remaining corpse to Levono. Other times, acquirers will bury
the original company and taint the products that they run with as was the case with Oracle
and Sun Microsystems/Java. In the 80s and 90s, Sun was an IT giant, but today, the brand is
virtually nonexistent because of Oracle. To make things worse, Oracle annihilated the reputation
of Java by trying to sue Google for their use of it. If none of this has transpired after an
acquisition, it may just be a successful one, but even that is only in the eyes of the the acquirer
and shareholders. Oftentimes, the original team who founded the company is completely kicked out
and robbed as was the case with both Instagram and Whatsapp. Things have gotten so bad between
Whatsapp’s founders and Zuckerberg that Whatsapp’s founders are literally advocating for people to
delete Facebook. The original founders aren’t the only victims in such takeovers either. While a big
mighty monopoly might be a dream for investors, the same cannot be said about consumers. So,
in almost every case, hostile takeovers end up hurting the original company, the original
product, the founders, and/or the public. But, this is simply the reality of our modern
capitalistic society. However, there are some rare scenarios in which the brash acquirers get a taste
of their own medicine. Such was the case with Texaco and Getty Oil which was at the time, the
largest takeover in history. This made sense as Texaco was the 6th largest company in the world,
and they were hoping that this acquisition is just what they needed to overtake Exxon and claim
the crown as the world’s largest company. But, little did they know that this hostile takeover
would not just be a nightmare but straight up be fatal. Just three years later, Texaco would file
for bankruptcy and the brand has been completely forgotten about since. So, here’s how one hostile
takeover destroyed the entire empire of Texaco. A FAMILY FEUD:
Taking a look back, the story of Texaco’s demise can be traced back to the feud of
a completely unrelated family: the Getty family. The Getty family was the owners of Getty Oil which
was at one point one of the largest companies in the world. In fact, it’s visionary founder, Jean
Paul Getty Sr, was regularly listed as the richest man in the world. For example, in 1957, Fortune
listed him as the richest man alive and in 1966, Guinness listed him as the world’s richest
private citizen. Let’s just say, this guy was a billionaire back in the 50s and 60s so he was
really rich, but he didn’t let this wealth get to his head. He understood how volatile his fortune
was and that much of his wealth was just on paper. Jean was a shrewd businessman who was extremely
frugal and obsessed over every deal. In fact, he learned Arabic so that he could personally
negotiate deals in the Middle East and not get screwed over by translators. He would also wash
his clothes by hand because he didn’t want to pay anyone else to do it. Unfortunately though, this
mentality didn’t rub off on his family whatsoever. And this would become painfully evident throughout
the 1970s. Getty Oil would take a substantial hit from the 1973 oil crisis, though this was nothing
that Jean couldn’t recover from. Something he couldn’t recover from though was death and this
was his fate in 1976 at the age of 83. Getty Oil was mostly family owned, so you would think that
they would all join forces and try to protect this family empire. But, the reality was that
they were way too busy arguing over who would get control of the fortune. This was the case
with everyone except for Jean’s youngest son, Gordon Getty. Gordon didn’t really care about
the family business. This isn’t to say that he wasn’t grateful for his wealth but simply that
he wasn’t looking to run the company or take it to the moon. Instead, he just wanted to write
music and appreciate Opera, and funnily enough, that’s exactly what he’s been doing to this day.
So, you could say that money and power hadn’t really corrupted him yet. The rest of Gordon’s
family was astonished by his nonchalance to the whole situation, so they figured that he would be
the most level headed person to have control of the company. This was a terrible idea. The reason
Gordon was so nonchalant about the whole situation was because it didn’t concern him. Gordon’s
ideal scenario was selling off the company, getting a massive payout, and moving on with his
life. And this is eventually what he would do, but we’ll get to that later. To hand over
substantial control over the company to such a guy was simply braindead behavior, but
fortunately, there was one saving grace. The family also handed over substantial control
to a trusted family lawyer named C Lansing Hayes Jr. Now, it’s not clear how good of
a businessman this guy was, but atleast he wasn’t hopelessly incompetent. This arrangement
would take the company through the next 6 years, but in 1982, C Lansing would also pass away
which meant that his control would role over to Gordon. Gordon now had a 40% stake in Getty
Oil, and let’s just say, he was clueless as ever. GORDON TAKES OVER:
Now that Gordon had such a large stake in the company, he
felt that he was obliged to do something, so he started with trying to address
their rockbottom stock price. You see, the oil that the company owned itself should’ve
given the company a valuation of $100 per share, but the company was somehow trading at just $50
per share. So, Gordon decided that it would be a brilliant idea to bring in some external help, but
he would walk straight into the jaws of a shark: T. Boone Pickens. This guy was one of the
most infamous corporate raiders of all time, and back in the 1980s, this was the number one guy
you wanted to avoid as a struggling company. Yet, Gordon would go straight to this guy and divulge
a bunch of company secrets. You know how they say that if you have a good experience with a
car salesman, you probably got scammed? Well, this sentiment couldn’t be truer with Gordon and
T. Boone Pickens. Gordon felt that Pickens gave him really good advice and that it would be a
good idea to setup a meeting with the chairman of Getty, Sidney Peterson. Peterson actually went
into the meeting with an open mind, but he quickly realized that Gordon had already spilled the
beans, and he could see exactly what Pickens was trying to do. So, he would instantly force Pickens
to sign an win winnightmareblunderwin winagreement that he wouldn’t attempt a hostile takeover.
Peterson probably left the meeting with a sigh of relief that he was able to cover for Gordon’s
blunder and stay one step ahead of Pickens. But, it didn’t take long for Gordon to
start talking with yet another shark: the Bass Brothers. Fearful that Gordon was gonna
leak company secrets to all of Wall Street, Peterson would bring in external advisors of
his own in 1983: Goldman Sachs. Goldman didn’t know about the distrust between the board and
Gordon, so they would make a recommendation purely based on the financials of the company. Goldman
suggested that Getty buyback $500 million worth of stock. Given that their stock was trading for half
of the value of their oil, this was great advice. If they were able to complete this buyback and
follow it up would a strong corporate turnaround, they would simply be even richer. But, there was
one fatal flaw with this plan. If the company followed through with this repurchase plan, Gordon
would end up with over a 50% stake meaning that he could do whatever he wanted without the board.
This would be suicide for the company and this was simply confirmed by Gordon’s incoherent statement
that followed. He said quote, “What I really want is to find the optimum way to optimize value.”
Yeah, there was no way the board was gonna let this dude takeover. So, they would go ahead and
reject the idea of a stock buyback, but this simply increased the strife between the board and
Gordon. Gordon started to feel that the next step for the company wasn’t to get external help but to
get rid of the board and this led to all out war. TEXACO STEPS IN: All Gordon had to do was figure out how to
increase his stake by a mere 10%, and the it didn’t long for him to find the perfect target:
the Getty Museum. The Getty Museum owned 12% of the company and was led by a man named Harold
Williams. If Gordon could get Williams on his side, well then, he could kick out the board, sell
the company, and move on. To winover Williams’ support, Gordon offered to buyout the shares
of the museum at a very favorable price, but Williams didn’t want any part of this nonsense.
He knew that this would simply lead to years if not decades of corporate drama that he didn’t want
any part of, but he would change his mind after a new development. You see, it wasn’t just Gordon
that was trying to kick out the board. The board was trying to reduce Gordon’s influence as well,
so they had recruited Gordon’s 15 year old nephew to sue his Gordon into implementing a co-trustee.
This would effectively cut his control by half, but this move would also push Williams over
the edge. He couldn’t believe that the board was leveraging children to push out Gordon, so
he would agree to help Gordon sell the company. To accomplish this, he would bring in the CEO
of Pennzoil, Hugh Liedtke. Pennzoil wasn’t big enough to buyout the entirety of Getty, but they
could help Gordon get rid of the board. Liedtke would agree to buy 20% of Getty at $100 per share
which would give him a seat on the board. From there, he could buy out the museum which would
allow him and Gordon to takeover the company. This put the board in a super sticky situation. They
couldn’t outright refuse or accept this offer. This offer was substantially higher that the stock
was trading for. So, if they rejected the offer, they would open themselves up to shareholder
lawsuits. At the same time though, Goldman valued the company at $120 per share, so if they accepted
the offer, they would still open themselves up to shareholder lawsuits. The board countered that
they would do the deal for $120, but Liedtke was only willing to go up to $112.50. At this
point, the board could’ve put up more resistance, but that wouldn’t have accomplish much. If they
turned down Liedtke, Gordon would simply become even more aggressive and bring in someone else.
So, with that, all parties would agree to the deal in principle and it seemed like this is how
this multi year family feud would finally end. But then, out of nowhere, Texaco would step in. They
said, forget $120. We’ll buy everything for $125. We’ll buy the public share, Gordon’s share, the
museum’s share, everything. This was a win win win win scenario. The board was not only able to sell
the company for slightly more than fair value, but they could ensure that Gordon wouldn’t get
control of the company either. As for Gordon, well he didn’t want the company in the first
place, what he wanted was out, so he was happy to take the money and focus on music. Meanwhile, the
Museum was able to get out of this drama without have to side with the board or Getty. And as for
Texaco, well, they now had a chance at overtaking Exxon and becoming the world’s largest company.
Given that all parties were ecstatic, the deal would go through in no time, but there was one
person who wasn’t happy at all: Hugh Liedtke. PENNZOIL GETS REVENGE:
Before Getty completed the deal with Texaco, they had already agreed to do the deal with Pennzoil
in principle. Texaco was aware of this, but they assumed that Pennzoil would just let it go. At
the end of the day, they had put up a good fight, and they were close, but no cigar. Texaco had come
out on top and it was time for Pennzoil to accept their loss and move on, but Pennzoil had different
plans. Yes, they had lost out on Getty but not because they were incompetent or outsmarted but
because they were cheated. They had already struck a deal with Getty, and it was not only distasteful
for Texaco to step in but a breach of contract, and Pennzoil was gonna get revenge through legal
means. This was a nightmare for Texaco. They had just bet the farm on Getty. They had just spent
$9.9 billion on the acquisition which was again the largest in history. This was by no means
a small amount for even Texaco themselves. At the time, they were making about $1.2 billion per
year, so they had basically bet 8 years worth of profit on Getty. And, who knows how much debt
and leverage they had to use to complete this deal. So, Texaco had no doubt made a risky bet
with Getty, but they felt that if they could just turn around the company, they would be rewarded
insanely. This lawsuit, however, threw a wrench in all of their plans. The last thing they wanted
to do was fight another oil giant or worse, payout billions of dollars to them. Pennzoil nonchalantly
wanted a full $10.53 billion, and given that they did have the deal in principle, it was easy
for the jury to side with Pennzoil. For Texaco, this was a death sentence, as they were basically
being forced to buy Getty for a second time. At least with Getty, they were getting an
income producing entity with assets, employees, and reputation. With the lawsuit,
the money was just going straight to Pennzoil’s bottomline. Texaco would of course appeal
and the case with go to the supreme court, but the supreme court would simply humiliate
Texaco. The justices didn’t even go as far as discussing whether Texaco should have to
pay. They straight up said that Texaco didn’t even have the right to appeal this decision and
that their claims lacked merit. And with that, Texaco had no choice but to pay. And given that
they couldn’t pay, they had no choice but to file for bankruptcy on April 12, 1987. Now, that
Texaco had been completely driven to the ground, Pennzoil would finally ease up. They would agree
to a much lower but still devastating amount of $3 billion. Texaco would eventually emerge from
bankruptcy, but it was never really the same. They would face a slow decline throughout the 90s
before being bought out by Chevron for $35 billion in 2000. Over the next decade, Chevron would
slowly convert Texaco gas stations to Chevron gas stations or completely shut them down. Today,
there’s still 1297 Texaco gas stations across the US which just goes to show how big Texaco really
was. But, while you might be able to spot a Texaco on occasion, the brand is effectively
dead all because of a hostile takeover. TEXACO TAKEAWAY: In the end, Texaco messed with something
that they had no business messing with. Getty was a declining brand that was
filled with drama, backstabbing, ego, but ironically everyone on the Getty side
of things came out really well. The Texaco acquisition made Gordon the richest person in the
world, and he’s still a multi billionaire to this day. The board was able to successfully
defend the interests of shareholders, and the museum was able to safely exit all the
drama. So, Texaco solved all of their problems, but they brought on a fatal problem for
themselves. If their hostile plan had worked out, they may very well still be up there on
the Fortune 500 list along with Exxon. But, their greed came along with an $11 billion price
tag. And they quickly become a shadow of the past, and that’s what happened to Texaco. Do you think
Texaco deserved what they got for overstepping Pennzoil? Comment that down below. Also, drop
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