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 a like if you would like to see more videos
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