Kerkorian takes casino crown

Kerkorian takes casino crown
By Chris Woodyard, USA TODAY

USA Today
June 17 2004

Las Vegas has always had its share of dreamers and big shots, but
never one quite like Kirk Kerkorian. As majority stockholder of
MGM Mirage, he would have had every reason to publicly join in the
hoopla Wednesday about Mandalay Resort Group’s acceptance of MGM’s
$4.8 billion cash buyout offer.

The deal makes Kerkorian the mogul among moguls: He’ll control more
Las Vegas hotel rooms than Howard Hughes or Stephen Wynn could ever
assemble. If the deal passes regulatory muster, MGM will become the
world’s largest gaming company. It will lord over 11 casino resorts on
the famed Las Vegas Strip alone, including jewels such as Bellagio,
Mandalay Bay and Luxor along the hottest stretch. Kerkorian’s empire
would extend to 17 other gambling halls in Nevada, elsewhere in the
USA and Australia.

“This is the king of all deals in the gaming business,” says Rod
Petrik, gaming analyst with Legg Mason. “He will be the No. 1 operator
on the Strip, with the best properties.”

Even in triumph, Kerkorian, 87, characteristically stayed out of the
limelight. At an age when most people are retired, Kerkorian struck
his biggest casino deal and declined to be interviewed about it.
That’s in contrast to the flamboyance that has marked Strip tycoons
such as gangster Bugsy Siegel, who opened the Flamingo as the Strip’s
first flashy casino in 1946.

Mandalay’s board approved the deal Tuesday night amid antitrust
concerns. MGM Mirage CEO Terrence Lanni said in an interview that his
board is “very comfortable” with lawyers’ assurances that antitrust
issues won’t be a problem.

MGM is paying $71 a share cash, in a deal that, along with
convertible securities and assumption of debt, is valued at $7.9
billion. Wednesday, MGM shares fell 62 cents to $48.88. Mandalay
dropped 8 cents to $67.80, short of the $71 acquisition price, in
recognition of the year it could take for the deal to close and the
chance that regulators could interfere.

Besides the potential to own half the 75,000 rooms on the Strip,
MGM would acquire about 2 million square feet of meeting space
in the nation’s largest convention city. MGM would also become
better positioned at the high and low ends of the gambling market,
better able to attract $500-a-hand blackjack players and nickel-slot
aficionados alike. That helps spread the risk as Wynn is about to
open a megaresort on the north end of the Strip next year, which
could siphon the most profitable high rollers.

“I’m very excited,” Lanni says. Mandalay “has wonderful properties
and great brands.”

The consolidation comes as greater Las Vegas, one of the nation’s
fastest-growing metropolises, continues to attract new visitors.

The Mandalay acquisition is Kerkorian’s second big casino deal in
four years. In 2000, MGM acquired Wynn’s Mirage Resorts for $4.4
billion. Then, as now, Kerkorian stayed behind the curtain.

He is publicity-shy but not reclusive. The Southern Californian plays a
mean game of tennis, buys a ticket and stands in line for movies and is
known to frequent plush but unflashy restaurants. Like Howard Hughes,
he’s a former pilot who dallied in the movie business. Unlike Hughes,
he hasn’t locked himself in a hotel casino penthouse, grown a long
scraggily beard and shunned all but his closest cronies.

Chasing deals

For him, the elixir of life is love of the deal. The bigger, the
better. Among the builders of modern Las Vegas, “Kerkorian is one
of the most enigmatic and interesting figures,” says Hal Rothman,
a history professor at the University of Nevada-Las Vegas. “He is
uncanny in his ability to read the market.”

While others ignored Las Vegas as a garish, sweltering pool of
excess, Kerkorian saw how both the masses and the elite would come to
embrace it. In the course of amassing a $6 billion empire, Kerkorian
has constructed the world’s largest hotel on three occasions: the
International, which later became the Las Vegas Hilton, in 1969;
the MGM Grand, now Bally’s, in 1973; and the present MGM Grand in 1993.

“He’s the smartest man I know,” says Alex Yemenidjian, CEO of Kerkorian
film studio Metro-Goldwyn-Mayer. “It takes three minutes for him to
figure out something that takes me three days.”

Yemenidjian, who speaks to Kerkorian by phone daily and plays tennis
with him most weekends, adds: “I don’t know anybody else who has
created more jobs in Las Vegas or been more charitable.”

Kerkorian, No. 65 on Forbes list of billionaires, has, without fanfare,
donated at least $150 million, often to his ancestral homeland
of Armenia.

Through his Tracinda holding company, named after his daughters Tracy
and Linda, he owns 57% of MGM Mirage. He also has large holdings
in DaimlerChrysler, which he is suing for $1 billion for allegedly
defrauding investors in the 1998 merger between the giant automakers.
A verdict is expected in the fall.

He keeps residences in Los Angeles and Las Vegas. He’s involved in
his businesses but doesn’t dabble in details. He’s “a very big-picture
person,” Lanni says.

Kerkorian came to know Las Vegas the way most first see it: as a
gambler. The Fresno-born son of an Armenian immigrant, Kerkorian was
a scrappy boxer as a youth and later ferried bombers from Canada to
England during World War II for the Royal Air Force.

In 1947, the year Siegel was shot and the Flamingo started showing
a profit, Kerkorian paid $60,000 for a plane to shuttle movie stars
and high rollers. He built it into a $104 million charter business
that was sold to Transamerica in 1966. He used the profits to build
the International and buy Metro-Goldwyn-Mayer film studio. He would
buy and sell it three times.

As Kerkorian was about to emerge as a force in Las Vegas, Hughes
was king. Hughes bought some of the biggest casinos of the time,
including the Desert Inn, Sands, Landmark, Frontier, Silver Slipper
and the Castaways. All were puny compared with the room counts of
today’s giants.

Fire dealt setback

Kerkorian had setbacks. The hotel then called the MGM Grand,
predecessor to the one by that name further south on the Strip,
caught fire in 1980, and 81 people died. “After the fire, he …
stayed underground,” says John L. Smith, who has written several
books about Las Vegas and is a columnist for the Las Vegas
Review-Journal. “It is something that bothered him for a long time.”

Kerkorian eventually re-emerged. His new MGM Grand remains Las Vegas’
largest resort, with 5,034 rooms. It was built with a concert hall
and an amusement park for the town’s family-friendly era.

When adding Wynn’s former Mirage Resorts properties, including
Bellagio, Mirage and Treasure Island, MGM made sure the properties
kept their own personalities. In Mandalay Bay, for instance, Kerkorian
is getting a property known for its hipness.

Kerkorian’s power play comes as Sin City is enjoying a resurgence. It
had more than 12.5 million visitors through April this year, up
7.5% from the first four months of 2003, the Las Vegas Convention
and Visitors Authority says. “If there’s any place to double down,
Nevada is the place to do it,” says analyst Eric Hausler at Susquehanna

The Mandalay purchase, like any gamble, has risks. Riverboat
and American Indian gaming are growing, particularly in the key
California market that feeds gamblers to Las Vegas by bus and car.
The number of people arriving by air rose about 15% in the first four
months of 2004, vs. the same period in 2003. Another terrorist attack
could leave MGM/Mandalay dangerously exposed if there’s a plunge in
visitors. “This will be a huge concentration of properties betting
on Las Vegas,” says Dan Ahrens, portfolio manager of the Vice fund,
which is 28% invested in gaming stocks.

Few would bet against Kerkorian even if he’s out of sight. “Kerkorian
is still at the helm here,” says author Smith. “The lion never sleeps.”

Contributing: Matt Krantz, Thor Valdmanis and Darryl Haralson