DetNews.com, MI
July 1 2006

Is GM ultimate risk for Kerkorian?

Billionaire investor appreciates dangers and rewards of betting on
ailing firms, analysts say.

Bryce G. Hoffman / The Detroit News

Global stunner: Link GM, Renault-Nissan

Kirk Kerkorian, the billionaire General Motors Corp. shareholder
angling for a three-way alliance of GM, Renault SA and Nissan Motor
Co., has always liked taking risks.

But this is a big one, even for a guy who owns 9.9 percent of ailing
GM, the world’s largest automaker.

Some observers say Kerkorian is drawn to GM by the same thing that
drew him to the casinos of Las Vegas, where he became one of Sin
City’s original high rollers.

"It’s the love of the game," said Joe Phillippi, president of Auto
Trends Consulting in Short Hills, N.J. "It’s not for money per se,
because he’s got plenty. And it’s not about saving a great American
icon, though he uses that phrase a lot."

Phillippi thinks Kerkorian is attracted to the automotive industry by
its scale.

"Every bet in the automotive business is a billion dollars," he said.
"It’s a very expensive game to play."

Born in California to Armenian immigrants in 1917, Kerkorian dropped
out of school in the eighth grade and earned his pilot’s license by
milking cows for a flight instructor. He went to Canada to join
Britain’s Royal Air Force before the United States had even entered
World War II, volunteering for what many fliers regarded as suicide
missions in exchange for $1,000 a trip.

Kerkorian not only lived to tell about it, but also used his earnings
to start a small charter service back in the States when his tour of
duty ended. That took him to Vegas.

In 1962, he bought 80 acres on the Strip for just under $1 million.
He leased it to the builders of Caesars Palace and made $4 million
off the deal before selling it to the casino for another $5 million
in 1968.

Kerkorian went on to become one of the most successful hotel and
casino tycoons in Las Vegas and became the 19th richest person in
America, according to Forbes, which estimates his personal fortune at
more than $10 billion.

The billionaire investor manages his vast empire through his Beverly
Hills, Calif.-based Tracinda Corp. His interest in the automotive
industry dates back to 1990, when he started buying shares of
Chrysler Corp.

Kerkorian soon became Chrysler’s largest shareholder and a close ally
of then-CEO Lee Iacocca. Five years later, with Iacocca retired and
the company’s share price slumping, the pair made a play for control
of the company. Their hostile takeover bid failed, but Kerkorian did
convince Chrysler to put a Tracinda representative on its board, buy
back shares to increase their price and boost dividend payments.

Kerkorian acceded to what was pitched as Daimler-Benz AG’s "merger of
equals" with Chrysler in 1998. But he later sued the new company,
DaimlerChrysler AG, after then-CEO Juergen Schrempp told a London
newspaper he called the deal a "merger" just to get it done.

Kerkorian, represented on Chrysler’s board, claimed he had been duped
into supporting what had all along been a straight acquisition of
Chrysler. From the beginning, the Germans referred to the deal as
"die Uebernahme," or the takeover.

Last year, in a closely watched case, a federal judge ruled against
Kerkorian. But John Casesa, who follows the industry as a principal
of the Casesa Shapiro Group LLC in New York, said Kerkorian had
little to regret.

"I doubt very much it would have happened without him," Casesa said.
"He did get them to sell the company a high price. He made a lot on
that deal."

Last year, Kerkorian set his sights on GM. Already a major
shareholder, he began increasing his stake in the company even as
other investors were abandoning it. By December, he had amassed 9.9
percent of GM’s shares and was ready to start shaking things up.

In January, Tracinda demanded that GM cut its dividend payments in
half, cut executive compensation and consider selling off some of its
weaker brands. The company agreed to the first two demands. A month
later, Kerkorian forced GM to give Tracinda representative Jerry York
a seat on its board.

Kerkorian’s moves were seen as a challenge to GM Chairman and CEO
Rick Wagoner, even though the savvy mogul insisted in regulatory
filings that his interest was purely "passive."

"They’re persistent in pushing their agenda," Casesa said. "These
guys will not let up."

Why does Kerkorian do it?

Casesa said Kerkorian is a contrarian investor who fully appreciates
the risks and rewards of betting on troubled companies like GM, and
Chrysler before it. When he invests in a company, it is usually with
an eye to altering the corporate course to boost share price and book
a profit on his usually sizable investment.

"It is hard to rival buying into Chrysler at the bottom but he
certainly has been one to see the restructuring alternatives on the
other side of the blind panic that often creeps into these
situations," said Glenn Reynolds, an analyst with CreditSights, a New
York-based research firm. "He buys when others run scared, and he
uses his leverage or even the fear of his leverage to effect change."