Detroit Free Press, MI
June 30 2006
Archives: Kirk Kerkorian: Wizard investor’s shadow looms over GM
board
June 30, 2006
Originally published Thursday, May 05, 2005
By JOHN GALLAGHER
FREE PRESS BUSINESS WRITER
Kirk Kerkorian has been hurling lightning bolts at Detroit for 15
years now.
Like an angry wizard in a hidden fortress, the reclusive Kerkorian
has roiled two of Motown’s major industries – auto manufacturing and
casino gaming – and changed the city’s landscape with the creation of
MGM Grand Detroit.
He may have cast his most thunderous bolt Wednesday, announcing that
he wants to up his stake in General Motors Corp. to nearly 9 percent.
Although the increased stake was described as for investment purposes
only, rather than a bid for active control of the world’s biggest
automaker, Detroiters singed by the wizard’s wrath take nothing for
granted.
After all, when he first bought a chunk of then-Chrysler Corp. in
1990, he also said he was only a passive investor, but later launched
a bitter takeover fight.
"He certainly strikes terror in the boardrooms of major
corporations," said Oakland County Executive L. Brooks Patterson.
But many Detroiters applauded the announcement, saying Kerkorian has
magic in his eyes when it comes to spotting value in a company.
"You look at it twofold," David Sowerby, portfolio manager at the
Bloomfield Hills office of Loomis Sayles & Co., said Wednesday. "To
the extent that he has a proven track record and is looking for
deeper value opportunities, then I think that’s a resounding positive
signal that he sees potential where many investors are skeptical on
General Motors.
"The second issue then becomes more of a home-turf, let’s call it
Fortress Michigan, perspective," Sowerby added. "Does he come in and
potentially upset the apple cart? That second issue is too soon to
tell, with respect to retirees, health care, pension costs, labor
contracts."
Lansing-based economist Patrick Anderson also viewed Kerkorian’s
interest in GM as mostly positive.
"I view that as a savvy investor saying that the world is not valuing
this crown jewel of American industrial might as it should," Anderson
said. "I don’t think it’s any nostalgia for Detroit iron or a desire
to move to Woodward Avenue. He expects to make some money."
That Kerkorian even resembles a Merlin-like character only adds to
his mystique. Now 87 years old, his power lies in his fantastic
wealth – $8.9 billion, according to Forbes magazine’s 2004 list of
the 400 wealthiest Americans.
No doubt the debate on Kerkorian’s impact on Detroit will continue
for years.
A wizard of a deal-maker
A decade ago, then-Chrysler Chairman and Chief Executive Officer
Robert Eaton blistered Kerkorian as a corporate raider out to savage
a healthy company after Kerkorian launched a takeover bid. Yet others
noted that Chrysler’s stock price more than doubled between the time
he first started buying the shares in 1990 until the time he backed
off his takeover attempt five years later.
Moreover, although many Detroiters opposed the opening of casinos in
the city for many years, Kerkorian’s MGM Grand in Detroit has pumped
millions of dollars into municipal coffers. Now that a court ruling
has cleared the way for bigger permanent casinos in the city, MGM
Grand’s proposed site on the west side of downtown promises to
substantially change the city’s skyline.
About all that’s certain is this: For a man whom few, if any,
Detroiters have ever laid eyes on, Kerkorian has shaken up the Motor
City like few before him.
The son of Armenian immigrants who ran a produce business in Fresno,
Calif., Kerkorian quit school as a teenager to go to work. He spent a
year in the Depression-era Civilian Conservation Corps, served as a
military pilot during World War II, and after the war ran a small
air-charter service to ferry gamblers between Los Angeles and Las
Vegas.
Kerkorian paid $60,000 for the charter service in 1947, when he was
30. In 1968, he sold it to Trans-america Corp. for a little over $100
million. It was his first fortune, and a banker friend, Walter Sharp,
said much later the transaction transformed Kerkorian.
"Kirk realized then that everything was in the timing," Sharp said in
1995. "He became fascinated with the idea of making deals."
And deals there were. For a man so intensely private, he showed a
remarkable taste for splashy investments, mostly in Las Vegas. With
the proceeds of his airline sale, he acquired the Flamingo hotel
there in 1967. It was just the first of several casino-hotels
Kerkorian would buy, sell or build in the decades since.
Last June, he was behind a $7.9-billion takeover of Mandalay Bay
Resorts. That, in turn, forced the sale under Michigan gaming laws of
Mandalay Bay’s MotorCity Casino in Detroit. By accepting a bid from
pizza and sports entrepreneur Marian Ilitch, Kerkorian dramatically
shuffled the cast of players in Detroit’s casino industry.
Movies also have held a lure. Kerkorian bought the MGM film studio
three times between 1970 and 1996, once selling it to mogul Ted
Turner and buying it back again in a matter of months.
Although nowhere near as reclusive as the legendary Howard Hughes,
Kerkorian nonetheless runs a low-key operation. Angered by a
reporter’s questions years ago, Kerkorian rarely, if ever, gives
interviews. Shy and unpretentious, he has been known to stand in line
even for movies his own studio produced rather than ask for private
screenings.
His Las Vegas-based company, Tracinda Corp., is named for two
daughters, Tracy and Linda. His personal life has had a tabloid
flavor: Kerkorian has been married three times, including a 1999
union with tennis pro Lisa Bonder that lasted one month before
divorce papers were filed.
Peter Bart, a former MGM executive who wrote a book about Kerkorian
years ago, once told the Free Press that the billionaire’s interests
didn’t go toward day-to-day operational issues at the companies he
owned.
"If his performance were the same at Chrysler as it was at MGM,
expect him to take no interest in the car industry, to rarely show up
for anything and to never second-guess next year’s new models," Bart,
author of "Fade Out: The Calamitous Final Days at MGM," told the Free
Press in 1990.
"He’s about as far from Lee Iacocca as you can get," Bart added at
that time. "He admits he’s never been a good judge of character, and
it inhibits his ability to build a good management team."
Will lightning strike again?
Ironically, it was a meeting with Iacocca that sparked Kerkorian’s
interest in Detroit. Meeting the then-automotive executive at a
Florida racetrack, Kerkorian agreed in 1990 to invest in Chrysler,
whose finances were shaky again because of slumping sales.
Five years later, his stance as a passive investor gave way to a
takeover bid when the company didn’t perform as he’d hoped. Among
other moves, he got former Kmart executive Joseph Antonini to resign
from Chrysler’s board so his own candidate could take his place. At
the height of the controversy, Kerkorian was demanding three seats on
the board, a prohibition on issuing new stock that would dilute
shareholders’ voting rights and the right to buy more Chrysler stock
without penalty.
That bid ended when Kerkorian couldn’t stitch together a workable
deal. Later, he was an early and avid supporter of the deal that saw
Daimler-Benz AG merge with Chrysler in 1998.
But pleasure turned to anger once again when Kerkorian came to
believe that the merger was really an ill-disguised takeover that
devalued his shares. He sued DaimlerChrysler in a bitter and
protracted legal battle.
Although a judge in April rejected Kerkorian’s claims, the investor
at least had the satisfaction of forcing Daimler boss Juergen
Schrempp to testify in open court about embarrassing statements he
had made calling the deal a "merger" only to soothe American feelings
about a takeover.
From: Emil Lazarian | Ararat NewsPress