KERKORIAN’S FAILED GAMBLE MAY HAUNT GM SHAREHOLDERS
Barrie McKenna
Globe and Mail, Canada
Dec 5 2006
WASHINGTON — The job was perilous, but the pay was pretty good.
During the Second World War, a twentysomething Kirk Kerkorian flew
Montreal-built Mosquito fighters to Scotland for the Royal Air Force.
The transatlantic flights, via Labrador, pushed the range of the
twin-engine plane to the extreme. Countless pilots and aircraft were
lost during the daring wartime ferry mission.
Mr. Kerkorian successfully delivered 33 Mosquitos to the British,
pocketed thousands of dollars, and used his savings to launch an air
charter service after the war, flying gamblers from Los Angeles to
Las Vegas.
It was a big gamble, and it paid off.
The 89-year-old billionaire investor has been using the same M.O.
ever since: Take big risks, make a buck and get out.
That was the plan for General Motors too. Mr. Kerkorian’s investment
company Tracinda Corp. (named for his daughters Tracy and Linda)
built up a 9.9-per-cent stake in the venerable automotive company at
a cost of about $1.7-billion (U.S.).
He had done it successfully in the airline business, the casino
business and at Chrysler.
In GM, Mr. Kerkorian saw a bloated giant — a car maker with too
many models, too many plants, too many employees and an intransigent
chief executive officer (Rick Wagoner). He thought he could prod the
struggling giant to make big changes, including eventually ousting
Mr. Wagoner through an alliance with Nissan-Renault and its CEO
Carlos Ghosn.
The stock was languishing in the $30 range when he amassed his stake,
Mr. Kerkorian apparently believed GM could be a $50 or $60 stock again.
But when he started dumping the last of his shares late last week,
the stock had slipped below $29.
Mr. Kerkorian’s GM gambit is over, at least for now.
He’ll still earn about $100-million on his investment. But it’s not
the windfall Mr. Kerkorian had in mind.
The Wall Street Journal likened the denouement to a gambler folding
his hand when he knew he couldn’t win.
Mr. Kerkorian, a former high-stakes Las Vegas gambler, apparently
concluded that the only way to push GM to make the necessary changes
was the get rid of Mr. Wagoner. But he wasn’t going to go without a
long drawn-out fight, and at 89, Mr. Kerkorian wasn’t up to it.
Mr. Kerkorian isn’t the feisty daredevil of his youth. He long ago
gave up gambling.
The son of an Armenian immigrant fruit vendor, Mr. Kerkorian has
always lived life on the edge. He dropped out of school in grade 8 to
pursue a career as a professional boxer. When that didn’t work out,
he became a bouncer at a bowling alley. He later learned to fly while
working an airfield outside Los Angeles.
During the Second World War, he jumped at the chance to fly for the
RAF, in part because he feared he might be drafted into the infantry.
After the war, Mr. Kerkorian turned his passion for flying into a
business. He bought a small charter airline in 1947, and took it
public in 1965. He eventually sold the company, which specialized in
flying high rollers to Vegas, to TWA.
Mr. Kerkorian was seduced by the Vegas lifestyle. He gambled and
married a dancer (his second wife, Jean Hardy). During the early 1960s,
he also began buying up real estate along the city’s "strip" that
would eventually become the foundation of a casino and resort empire.
After a series of flips and land deals, Mr. Kerkorian was ready
to become a player in Vegas. In 1969, he built what was then the
largest hotel in the world — the International — on a remote patch
of the strip that critics said was destined to fail. It’s now the
Las Vegas Hilton.
Mr. Kerkorian also made a fortune in the movie industry, twice buying
into Metro-Goldwyn-Mayer studios, and then selling out.
Mr. Kerkorian’s life has come full-circle. With his exit from GM, Mr.
Kerkorian is getting back to his roots. Yesterday, Tracinda launched
an $825-million cash tender offer for up to 15 per cent of MGM Mirage,
which owns nearly half the Vegas strip. The offer would raise his
stake in MGM to 61.1 per cent from 55.9 per cent.
GM will be remembered as a failure for a legendary investor.
But it says more about GM’s lack of imagination that it wasn’t willing
to embrace Mr. Kerkorian’s vision of a radically overhauled, global
car giant.
If Mr. Wagoner’s more modest turnaround falters, the company’s
shareholders will wish GM had taken a gamble with a master risk-taker.