Summary of Pennzoil v Texaco

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Case Summary Getty Oil Company had two major shareholders, Gordon Getty, Getty Museum. Gordon Getty who was also the trustee of the Sara Getty Trust owned about 40% of the outstanding shares of Getty Oil. The Getty Museum held about 12% of shares of Getty Oil. In January 1984, Pennzoil Company rendered an offer to buy 3/7ths of Getty at $110 per share. Then representatives of Pennzoil, Gordon Getty and Museum reached the Memorandum of Agreement by signing on the agreement. The agreement stated that $110 per share offer was subject to the approval of the board of Getty oil and it would expire by its own terms if not approved at the board meeting in later days. Few days later, the board of directors of Getty Oil voted to reject the agreement price of $110 per share on the meeting as it was too low. Afterwards, Getty Oil’s investment banker, Geoffrey Boisi, started looking for other companies that are able to offer a higher price. Meanwhile, the board reconvened to revise Pennzoil proposal to $110 per share plus a $3 “stub” to be paid from the proceeds of the sale of ERC, a Getty Oil subsidiary. On the same day, the board accepted an updated proposal in which the guaranteed minimum for the stub was increased to $5. Towards the end of the meeting, representatives from Pennzoil and Getty Oil agreed on the proposal by shaking hands. After the meeting, lawyers began preparing definitive merger documents and press release to announce the deal. Next day, both Getty Oil and Pennzoil made the same announcement about this deal; however, the merger documents were not ready yet. At the course of the merger document preparation, the Getty’s investment banker Boisi still continued to contact other companies that could offer a higher price than Pennzoil offered. As a result, Texaco decided to offer simpler deal of $125 per share in cash. One day after the Texaco’s offer, Getty board changed their mind to accept Texaco’s offer instead, then Texaco issued a press release stating the merger between Getty Oil and Texaco immediately. Next day, the merger agreement was signed together with stock purchase agreement with the Museum and stock exchange agreement with the Trust. This had resulted in lawsuit in Delaware and Texas brought by Pennzoil against Getty Oil, Gordon Getty, Getty Museum, and Texaco in order to get the deal back to Pennzoil. Later on, Pennzoil added tortious interference with a contract to its claims against Texaco as Texaco had agreed to indemnify Getty Oil from any claims arising out of its sale to Texaco. In Texas court, Texaco affirmed that Pennzoil never had a contract because the parties had not yet agreed on the essential terms of the deal and that, even if a contract did exist, Texaco did not tortuously interfere with it. Neither Getty nor Texaco treated handshake as a symbol of agreement. Pennzoil presented the amount of damages caused by the agreement withdrawal. It was totaled at 7.53 billion in compensatory damages.

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