Third Time Is Still a Charm for Financier Kerkorian

By James Bates

Sept. 15, 2004 12 AM PT

Times Staff Writer

During three separate tours of duty as a studio mogul, Kirk Kerkorian shunned many of Hollywood’s trappings.

No red carpets, star-studded premieres, fleets of cars or screening rooms that are as common in the homes of Hollywood executives as laundry rooms. He drove around town for years in a Mercury station wagon. He now has a Jeep Grand Cherokee. When one of his Metro-Goldwyn-Mayer Inc. films was released, Kerkorian paid to watch it at a local theater.

“He prefers to see them in Westwood and stand in line with the audience,” said Terry Christensen, Kerkorian’s lawyer for more than 30 years.

For the enigmatic 87-year-old billionaire, glitter always took a back seat to making a return on his investment during his three stints owning MGM that date to 1969. Now, with a tentative deal in which a Sony Corp.-led consortium would pay more than $4.8 billion, it appears his third exit will be profitable as well.

Sony would pay $2.83 billion for MGM’s 236.6 million shares, with as much as $100 million eventually added when executives and others holding options cash them out. Sony also would inherit about $1.96 billion in debt.

Computing how much Kerkorian has made since he bought MGM for $1.3 billion in 1996 from French bank Credit Lyonnais is complicated by a series of convoluted stock offerings and purchases.

Sources estimate that Kerkorian’s investment came to about $15 for each of his 174 million shares, or about $2.6 billion. Assuming the Sony deal goes through, Kerkorian will have reaped about $20 a share, or nearly $3.5 billion. That includes a special $8-a-share tax-free dividend paid to stockholders this year, along with the $12 a share the Sony consortium is expected to pay.

That would put Kerkorian’s return on his eight-year investment at more than 33%. Compared with some of Kerkorian’s investments such as his foray into buying Chrysler -- said to have netted him $2.7 billion -- the $900-million return on MGM is healthy but unspectacular.

One frustration was that, in recent years, it had become harder for a pure, stand-alone studio such as MGM to compete with entertainment conglomerates that owned not only studios but also broadcast and cable TV channels.

“The business has changed since Kirk bought MGM for the third time,” said media analyst Jeffrey Logsdon, who has tracked Kerkorian for years. “The conglomerization of the entire industry made it more difficult for MGM to compete on the basis of size.”

That said, Kerkorian did defy skeptics who thought he was throwing his money away when he bought MGM in 1996. At the time, the studio was expected to be absorbed by a larger entertainment conglomerate because remaining independent was too difficult. But Kerkorian was soon riding the wave of Hollywood’s DVD boom.

Kerkorian frequently defies doubters. MGM Chairman and longtime Kerkorian lieutenant Alex Yemenidjian recalled the time his boss decided to invest amid much skepticism in Chrysler in 1990 after meeting then-Chairman Lee A. Iacocca.

The stock was trading at about $10 a share. Yemenidjian said that when a Bear Stearns executive expressed skepticism to Kerkorian about the wisdom of the deal, the investment bank’s chairman reminded him, “You don’t tell Babe Ruth how to hold a bat.” The stock eventually soared more than tenfold.

“Kirk is very intuitive,” Yemenidjian said. “He sees around corners.”

Kerkorian first bought MGM in 1969. He sold it to mogul Ted Turner in 1986 but then bought it back when Turner encountered financial troubles. Turner kept control of such classic films as “Gone With the Wind” and “The Wizard of Oz,” which he used to help program lucrative new cable channels. Kerkorian sold MGM again, to Italian financier Giancarlo Parretti, in 1990, buying it back in 1996 from Credit Lyonnais, which had seized it when Parretti defaulted on his loans.

Kerkorian still bristles at criticism that he callously dismantled and nearly sank the legendary studio in the 1980s. Christensen, his lawyer, says Kerkorian has long had an affinity for MGM.

Born Kerkor Kerkorian, the billionaire is a junior high school dropout and former amateur boxer. He shuns interviews and is uneasy at public events. Through a spokeswoman, he declined to comment for this story.

Although reserved in public, he has always had famous friends -- the late actor Cary Grant was one of his closest. Elvis Presley’s widow, Priscilla, is on MGM’s board. It was Kerkorian who brought the King to Las Vegas, booking him at his International Hotel, now the Las Vegas Hilton.

Kerkorian operates today through Tracinda Corp., named for daughters Tracy and Linda. His net worth is estimated by Forbes magazine at $5 billion.

Kerkorian also is awaiting a judge’s decision on a multibillion lawsuit he filed against DaimlerChrysler, in which he holds 1 million shares.

Kerkorian alleged that Germany’s Daimler-Benz misrepresented its 1998 acquisition of Chrysler Corp. as a “merger of equals,” costing him from $1 billion to $2 billion.

Kerkorian’s largest businesses by far are in Las Vegas, where his MGM Mirage Inc. is hoping to acquire Mandalay Resort Group for about $7.9 billion, including $3.1 billion in various forms of debt.

The transaction, which still requires the approval of federal and Nevada antitrust regulators, would create a behemoth on the Vegas Strip. The combined company’s holdings would include 36,500 rooms, 22,000 slot machines and 1,050 gaming tables at the Bellagio, MGM Grand, Mandalay Bay Resort, Excalibur and seven nearby hotels.

Exactly where Kerkorian goes from here remains unclear.

Although antitrust concerns probably would preclude further significant gaming investments in Las Vegas, he is betting on Britain. There, MGM Mirage has about $1.8 billion of investments lined up, depending on gaming and tax reforms under consideration by the British government.

Christensen said Kerkorian would probably find another industry and company that he believed was undervalued.

“He has shown an amazing track record of seeing value where others don’t necessarily see it,” Christensen said.

According to some who know him, that could even include a fourth act in Hollywood.

Times staff writer Jerry Hirsch contributed to this report.

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A Kerkorian chronology: More than half a century of deals

1948: Kirk Kerkorian founds charter airline Los Angeles Air Service with one used C-47 bought for $12,000. The company is subsequently renamed Trans International Airlines.

1962: Sells the airline to Studebaker Corp.

1964: Buys back TIA.

1968: Sells the carrier to Transamerica for stock that eventually nets him $104 million.

1968: Acquires controlling 30% stake in Los Angeles-based Western Airlines.

1969: Forms International Leisure Corp. and sells 17% to the public for $26.5 million. Company acquires the Flamingo hotel- casino in Las Vegas and builds the International, the first successful casino not on the Strip.

1969: Purchases control of Culver City-based Metro-Goldwyn-Mayer.

1970-71: Sells two Las Vegas hotels to Hilton Hotels.

1973: Reenters casino gambling with construction of MGM Grand Hotel in Las Vegas.

1976: Sells remaining 17% stake in Western Airlines back to the company for $30.6 million.

1978: Accumulates 25.5% stake in Columbia Pictures. After overcoming antitrust objections, attempts a takeover but gives up in 1980 after a bitter battle with management.

1980: Spins off MGM casino operations into separate public company, retaining controlling stakes in both.

1981: Arranges MGM acquisition of United Artists after losing out to Marvin Davis in bid to acquire 20th Century Fox.

1982: Creates MGM/UA Home Entertainment to license MGM films for home video, sells 15% of the stock to the public, then buys it back.

1983: Makes but then withdraws offer to buy all shares of MGM/UA that he doesn’t own.

1984: Makes abortive effort to acquire control of Walt Disney Productions.

1985: Spins off United Artists as a separate public company. Buys the 30% of MGM Grand Hotels he doesn’t own for $126 million and months later sells its Las Vegas and Reno hotels to Bally Manufacturing for $440 million.

1986: Ted Turner buys MGM for $1.5 billion, but a financial squeeze forces him to sell back the MGM name, logo and production and distribution assets. Turner keeps about 3,000 film titles.

1987: Kerkorian starts luxury airline MGM Grand Air. Agrees to buy the venerable Desert Inn and Sands hotels on the Las Vegas Strip from Summa Corp.

1990: Italian businessman Giancarlo Parretti buys MGM/UA for $1.3 billion. Within a year, lender Credit Lyonnais seizes the studio when Parretti fails to make payments.

1990: Kerkorian buys 9.8% of Chrysler Corp.

1991: Makes a failed bid for Trans World Airlines with TWA unions.

1992: MGM Grand Air shuts down.

1995: Makes a bid for Chrysler but withdraws the offer.

1996: Buys MGM for the third time for $1.3 billion, with Australian broadcaster Seven Network.

1998: Buys out Seven Network, gaining a 90% interest in the company. Acquires PolyGram’s film library.

2000: MGM Grand buys Mirage Resorts for $4.4 billion.

2000: Files a $9-billion securities fraud suit against DaimlerChrysler over the German automaker’s merger with Chrysler.

2001: Cuts stake in DaimlerChrysler almost a third.

2002: Seeks a new buyer for the MGM studio.

2003: Slashes his shares of MGM 10%.

February: DaimlerChrysler trial concludes, but the judge has not ruled.