21st century mogul

Lion’s shareholder Kirk Kerkorian driven by the deal

Metro Goldwyn Mayer (MGM) 80^th Anniversary Supplement

Variety
April 19-25, 2004
Pgs. 5, 58, 62, 66

By Jack Egan

At 86, Kirk Kerkorian is six years older than MGM, which he owns for the
third time since first venturing into the Lion’s den back in 1969. In
the interim he’s sold MGM twice – to broadcast pioneer Ted Turner and to
Italian financier Giancarlo Parretti – only to buy it back later at
bargain prices, making a pretty penny along the way. A strategic
speculator of the first order, Kerkorian has had the knack of almost
always buying low and selling high, whether it’s airlines, studios or
casinos.

`Kirk Kerkorian’s not a builder like Lew Wasserman was with MCA – he’s
an investor, and a very good one,’ observes Tom Pollock, who worked
under Wasserman as head of Universal, and now has his own production
company. `If you had bought MGM stock every time Kirk bought, and sold
every time Kirk sold, you’d have done very well.’

Indeed, when it comes to the movie business, the view is that
Kerkorian’s done far better on the business side than the movie side.
Under his ownership, the Lion has been a revolving door for production
chiefs – James Aubrey, Frank Yablans, David Begelman and Frank Mancuso,
to name just a few. And overall they turned out far more misses than
hits. MGM’s only consistent success has been with the inexhaustibly
lucrative James Bond franchise, which MGM inherited when Kerkorian
bought United Artists in 1981 and merged the two companies to create
MGM/UA.

Indeed, Kerkorian’s own rise from a Fresno community of Armenian
emigrants to self-made billionaire, which makes Horatio Alger seem like
an underachiever, is a better plotline than many of the movies the
studio has released while he’s owned it. Along the way he’s been a
successful pugilist and an intrepid World War II flyboy.

Beyond Hollywood

Ultimately he’s been a master of maneuver, parlaying a single aircraft
purchased for $60,000 in 1947 into what is today a $6 billion empire.
(Forbes Magazine’s 2004 tally of the world’s billionaires ranked
Kerkorian 65^th with his entertainment, casino and other investment
stakes estimated at around $6 billion. He was 33^rd on Forbes’ most
recent list of the 400 richest Americans, making him the most moneyed of
today’s Hollywood moguls.)

Kerkorian’s kingdom these days goes well beyond Hollywood. Through his
Tracinda holding company, named after daughters Tracy and Linda, he owns
55% of MGM Mirage, the world’s biggest and most successful hotel-casino
operation. The empire stretches as far as Stuttgart, Germany, worldwide
headquarters for Daimler-Chrysler, of which Kerkorian owns a sizable
chunk. (Chrysler’s biggest shareholder when it combined with Daimler in
1998, he reportedly made billions of dollars on the transaction, but is
suing Daimler for $1 billion for allegedly defrauding shareholders by
misrepresenting the terms of the original deal. A verdict in the
recently concluded trial isn’t expected until the fall.)

Despite or perhaps because of Kerkorian’s reputation as a master
dealmaker, it’s taken a while for Kerkorian to gain respect in
Hollywood. Initially he was dismissed by many in Tinseltown as a gambler
who treated MGM like a lucky slot machine. Or he was viewed as a
short-term operator, slicing and dicing MGM, selling off Dorothy’s ruby
slippers along with the rest of the once-storied studio’s fabled assets.

Meanwhile, his penchant for privacy has caused him to be characterized
as reclusive and mysterious, a Wizard of Odd. Those who’ve known him for
a long time scoff at such a caricature, viewing him as a wiz of finance.

`Kirk is not a Hollywood person, he’s a money person,’ DreamWorks
partner David Geffen says. `He’s a businessman, he’s not nostalgic and
sentimental. And he’s not reclusive. He’s just very low profile, that’s
a big difference – he’s just not interested in attention of any kind.’

Far from reclusive

`He’s not reclusive, he’s not Howard Hughes,’ agrees MGM chief executive
Alex Yemenidjian, a close friend and a longtime business associate, for
whom Kerkorian has been a mentor. `He’s just private, and quite shy.’

Far from being invisible, he is often seen around Los Angeles, having a
drink at the Polo Lounge or dinner at Dan Tana’s. He’s even been seen
standing for a movie at the local cineplex.

`In all the years, he’s never asked me to have a screening for him, not
once,’ says Yemenidjian. `He prefers to go see movies in the theater,
even ones from MGM, just like an ordinary person.’

In Las Vegas he’s also been seen waiting in line for a show or restaurant.

Though he’s 86, age hasn’t withered Kerkorian’s physical fitness nor his
legendary acuity; he’s said to do the numbers for a deal in his head.

`He’s the youngest man of his age I’ve ever known’ says a marveling
Geffen. `He never stops.’

Kerkorian supposedly jogs daily and is an avid singles and doubles
tennis player, hosting a weekend round robin for a group of close
friends at his Beverly Hills mansion.

`His tennis game is better than it was nine months ago,’ says
Yemenidjian, a regular at the get togethers.

On the business side, Yemenidjian says he talks with Kerkorian on the
telephone twice a day or even more, `but only about the big picture.’
Which means wheeling and dealing. Kerkorian leaves day-to-day operations
of his enterprises almost entirely to his managers.

Unlike many donors, Kerkorian hides his light under a bushel, refusing
to receive any acknowledgement. `He feels if you receive something in
return, it’s not really charity,’ adds Yemenidjian.

Armenia has been the biggest beneficiary of Kerkorian’s munificence.
According to James Aljian, chairman of Kerkorian’s Lincy Foundation
(also named for his two daughters), gifts and loans to Armenia over the
past two years total $150 million.

The money has gone to rebuild the country’s roads; put up 3,500 housing
units in an area that had been devastated by a major earthquake in 1988;
and restore an opera house, museums and many other civic buildings in
Yerevan, Armenia’s capital. Offers to name various landmarks after
Kerkorian, from the biggest boulevard in Yerevan to the country’s main
airport, were turned down. One school that recently renamed itself
Kerkorian College was quietly asked to rescind the honor.

Selfless munificence

And despite the historic enmity between Armenia and Turkey, Kerkorian
gave $1 million to Turkey after its devastating earthquake in 2002.

Many charities, over a wide range of interests, in this country have
benefited from his generosity. Prominent is the Motion Picture and
Television Fund (MPTF), which runs a home and hospital for Hollywood’s
elderly in L.A.’s San Fernando Valley.

Kerkorian was a major donor in two of the fund’s largest campaigns, for
the Wasserman campus and the Fran and Ray Stark Villa. `What’s so
interesting is that he never asks for anything in terms of recognition,’
says Ken Scherer, executive director for the MPTF.

Kerkor Kerkorian (his given name) was born in Fresno in 1917, and grew
up amid a small colony of Armenian immigrants who had left their
homeland and moved to the San Joaquin Valley around the turn of the
century.

His parents were raisin farmers. When times got tough, the family moved
to Los Angeles in the 1920s. Kerkorian dropped out of what he called `a
semi-reform school’ at 13. With the onset of the Depression, he got a
job in Sequoia National Park working for the federal Conservation Corps.

A first lucky break came when he was taken under the wing of legendary
aviator Florence `Pancho’ Barnes, Hollywood’s first woman stunt pilot.
He showed up without a dime at her San Fernando Valley ranch, and she
put him up free at what she called her Happy Bottom clubhouse for
down-on-their-luck pilot friends.

In return for working her alfalfa fields, Kerkorian received free flying
lessons, which he would put to good use. A successful stint as a
welterweight boxer followed; he won 30 of 33 bouts and earned the
nickname `Rifle Right’ for his precise punch, a prescient predictor of
his later success in bearing down on targets as an investor.

The aviator

During World War II, he enlisted in the British Royal Air Force,
attaining captain rank ferrying planes from Canada to England over the
dangerous North Atlantic.

After the war ended, he sold scrap airplanes in South America, earning
enough to buy a transport plane for $60,000. He used that to launch a
pioneering charter service between L.A. and Vegas. The fledgling
enterprise eventually grew into Trans Intl. Airlines. Kerkorian sold
that for $104 million to Transamerica Corp. in 1969. That sum proved to
be a more than sufficient grub stake to strategically target Hollywood
and Las Vegas as a serious investor.

In 1969, Kerkorian began accumulating shares of Metro-Goldwyn-Mayer (he
attained a controlling stake five years later). That same year he
splashily opened the International Hotel in Las Vegas, the most massive
hostelry to be launched up to that point in the burgeoning gambling
capital. Kerkorian eventually sold it to Hilton.

Over the next three decades he accumulated an ever-expanding portfolio
of properties., buying and selling virtually every big-name hotel in town.

Under the MGM Grand umbrella (the gambling company had years before been
cleverly rebranded with the movie studio’s universally known name),
Kerkorian constantly reshuffled his Vegas holdings, at one time owning
virtually every well-known hotel in town.

The culminating coup came in 2000 when Kerkorian bought entrepreneur
Steve Wynn’s Mirage Resorts for $6.4 billion. Overnight that transformed
his already sizable MGM Grand company into what is today the world’s
biggest and most highly regarded gambling company, MGM Mirage.

Exit strategy

For Kerkorian, the third time around with MGM has not yet been the charm
he might have hoped. He’s estimated to have invested some $3 billion and
not yet hit the jackpot.

The guessing around town and on Wall Street is that he’s been trying to
find a way out. `He’s looking for an exit strategy, which is what all
the recent maneuvering has been about,’ says Hal Vogel, an expert on
entertainment companies, head of Vogel Capital and a longtime Kerkorian
watcher. `That may take some time, because for various reasons nobody
today can do a deal that size, but Kerkorian is nothing if not patient,
and since he’s taking a big slug of capital out, he can afford to wait a
bit.’

Kerkorian is working to refinance his MGM stake, much as shareholders
would refinance their house. That’s what the latest MGM dividend ploy is
all about. Yet to be officially announced, the plan is to pay a $6 to $9
cash dividend per share to MGM stockholders. Since he owns over 70% of
the company, that would net Kerkorian somewhere between $1 billion and
$1.5 billion. And under current tax laws, that’s tax free. The company,
one of the few anywhere that can say it’s debt free, would borrow to
finance the pay-out at current low interest rates.

Over the last few years MGM has been holding talks with a number of
other entertainment companies, such as Time Warner, about either being
acquired or merging. And last year, in a surprise move, Kerkorian
entered the bidding war for Vivendi Universal with a $10.5 billion offer
that along with others wound up being topped by GE. `The Vivendi bid was
also a form of exit strategy,’ notes Vogel, `since it would have allowed
him to profitably reshuffle the MGM assets, but only at the right price.’

So will there even be an MGM five years from now? `I’m not an
odds-maker, but I hope so,’ says Yemenidjian, who says he’d rather look
for acquisitions than find a way to merge. But then he hedges his
statement. `Ultimately I’ll have to do what’s best for my shareholders.’

And in one word, that’s Kerkorian.

PHOTO CAPTION (Pg. 5) – The Last Tycoon: Kirk Kerkorian arrives at the
J. Caleb Boggs Federal Building in Wilmington, Delaware to testify in
his lawsuit against Daimler Chrysler in December. As Kerkorian goes, so
does MGM.