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In very early 1984, Getty Oil and Pennzoil signed a "Memorandum of Agreement" for a complex investment and stock transaction whereby Pennzoil would purchase Getty Oil stock. The Memorandum set forth general terms of the investment that had been reached in conversations and that the Memorandum was subject to the approval of the Board of Getty Oil. The Memorandum was to expire if not approved at the January 2 meeting of the Board and was signed by persons who made up the majority shareholders of Getty Oil.
After some negotiations between Pennzoil and the Board of Getty Oil during that Board meeting which ran for several days, the Board approved the transaction. On January 4, 1984, both parties issued press releases with "agreement in principle" to the terms of the Memorandum.
On January 4, Getty Oil and Texaco began discussions for Texaco's purchase of Getty Oil, while at the same time the officers of Getty Oil and Pennzoil ratifies the agreed-upon terms of the Memorandum and the lawyers for each began preparation of final agreements.
On January 5, the Board of Getty Oil accepted a better stock offer from Texaco and voted to withdraw its negotiated counter-offer to Pennzoil which had been announced as agreed in principle with Pennzoil.
On January 6, Texaco issued a press release that Getty Oil and Texaco would merge. Pennzoil protested and Getty Oil filed suit for a declaratory judgment that it was not bound by any contract with Pennzoil. The final agreements for the merging of Texaco and Getty Oil were signed on January 6 - 8.
There, of course, is a long legal opinion about this case which focuses on the intent of the parties as determined by their acts and communications. The court scrutinized not only the Memorandum, but also the wording of the press releases and other documents.
In the end, Getty Oil was found to be in breach of the Memorandum of Agreement - the document the parties had viewed as a letter of intent. At what point in the story did it change from a letter of intent to a final agreement? Very hard to tell.
Pennzoil ended up with $10.6 billion (later settled for $3 billion) from Texaco for interfering in its deal with Getty Oil.
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