Kerkorian Intent on Spinoff of UA : Seeks 3rd Corporate Offspring in His 16 Years at MGM Helm

Kirk Kerkorian, who successfully transformed Metro-Goldwyn-Mayer into separate, publicly traded film and gambling companies with some financial sleight-of-hand several years ago, is about to produce the third corporate offspring of his 16-year tenure as MGM mogul.

Whether or not he completes a potential $1.5-billion deal to sell MGM to Ted Turner for $29 a share, the privacy-prone financier appears bent on launching MGM’s United Artists subsidiary as a separate company.

“Maybe it is being done with mirrors,” New York securities analyst Lee Isgur says. “Remember, they are trying to get (MGM/UA) shareholders, who already own UA, to buy (shares in the new United Artists).”

Under the Turner proposal, Turner would buy all of MGM/UA Entertainment Co., then sell back United Artists to Kerkorian, who in turn would sell a minority stake to MGM/UA’s former shareholders.

MGM/UA spokesman Art Rockwell said late Tuesday that the studio and Turner representatives were still negotiating and that a final agreement had not been reached. In another day of heavy trading, MGM/UA stock rose $1.375 to close at $24 on a volume of 1.9 million shares.

Kerkorian, who parlayed profits from a charter airline into control of a floundering MGM in 1969 and who now owns 50.1% of the studio, continues to dazzle onlookers with his footwork.

That he has continued to make huge investment profits, despite MGM’s conspicuous lack of major success in movie making over the years, is something of a marvel in the financial world.

With a lot of assistance along the way from Bank of America loans, Kerkorian has made fortunes since the late 1960s from a charter airline, a controlling position in Western Airlines, two Las Vegas hotel-casino ventures (the big International and the Flamingo, now the Las Vegas Hilton and the Flamingo Hilton, respectively) and later his MGM Grand Hotels casino empire.

One of his most notable coups was in the purchase of stock in Columbia Pictures Industries, one of several other Hollywood studios that he has coveted. He reportedly made about $70 million in profits when Columbia’s management bought out his 25.5% interest in February, 1981, evidently fearing a battle for control.

With that money he discussed buying a 22% stake in 20th Century Fox from Chris-Craft Industries. However, perhaps spurred by Kerkorian’s interest, Denver oil millionaire Marvin Davis beat him to the punch by lining up Chris-Craft Chairman Herbert Siegel’s support for an $800-million buy-out offer at Fox.

Kerkorian’s business strategy has always been closely held, and the curious have had to sustain themselves on what appears above the surface in actions or formal public announcements from his public companies.

The financier, who is 68 and has always looked younger than his age, was noticeably shy after his wealth brought him into the public eye. But he has become more reclusive in the last decade.

It has been years since he was available for press interviews. His chief spokesman, Los Angeles lawyer Stephen D. Silbert, has freely said that he advises Kerkorian against it, because “he has nothing to gain.”

Ironically, Silbert has been reported on a vacation safari in Kenya during the past days of feverish negotiations between MGM/UA and Turner.

With no one to speak for him at this time, there are no answers for observers who wonder why Kerkorian would want to stay in the movie studio business, considering MGM’s difficulties during his 16 years of control.

Movies on Cut-Rate Budgets

He began cashing in by selling the back lot of the Culver City studio and other assets of MGM shortly after acquiring control, while severely cutting down on the production of movies and getting out of foreign distribution under his first president, James T. Aubry Jr., whom he deposed in 1973.

In line with the Kerkorian regime’s philosophy for most of the 1970s, the few pictures that the studio did make were done on cut-rate budgets. The financier took some $11 million out of the company by having huge dividends declared in 1973 and 1975.

All the while, MGM was concentrating on its successful casino operations.

But in the late 1970s, Kerkorian said, he had a change of philosophy about the film business. He began buying into Columbia, and, in December, 1979, he hired David Begelman--who had just been ousted in a check-forging scandal at Columbia--to run a big new movie production program at MGM.

In June, 1984, the restless Kerkorian pledged himself as a financial participant in Saul P. Steinberg’s threatened push for control of Walt Disney Productions, but the Disney management headed that off by buying out Steinberg’s block of its stock.

Unfortunately for MGM, the Begelman film program didn’t produce blockbusters, and MGM acquired an immense debt when it bought United Artists in 1981. The combined studios’ debt reached $675 million by the time Kerkorian replaced Begelman with his trusted longtime lawyer, Frank Rothman, in February, 1982.

Alan Ladd Jr. Brought Aboard

Since then, the studio has hired and gotten rid of yet another top production man, Frank Yablans, after failing to get enough big hits.

The company, which paid off a large part of its debt, earlier this year brought in Alan Ladd Jr. to make yet another ambitious effort to make MGM films into big box-office successes.

Ladd is expected to remain with MGM if it is sold, while Rothman likely will head up UA, according to studio sources.

UA’s assets would be its own major library and one-half of MGM/UA’s existing film distribution system, which would be operated by its present management.

Meanwhile, MGM/UA, despite a $14.3-million net profit in the latest quarter ended May 31, has piled up a nine-month net loss of $66.2 million.

Just last Thursday, while the studio was negotiating with Turner, Rothman and Ladd announced a $175-million film production budget for the next fiscal year, which Ladd called “an affirmation of our plans for the long-term success of our company.”

CHRONOLOGY OF KERKORIAN’S BUSINESS DEALS

1968--Sells Trans International Airlines, a charter carrier that he created after buying and selling World War II surplus airplanes, 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 off the Strip. In a cash squeeze, Kerkorian sells both to Hilton Hotels in 1970 and 1971.

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

1973--Re-enters casino gambling with construction of MGM Grand Hotelin Las Vegas.

1976--Sells his remaining 17% stake in Western Airlines back to thecompany for $30.6 million.

1978--Accumulates 25.5% stake in Columbia Pictures. After overcoming antitrust objections, he 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--Broadcast maverick Ted Turner negotiates to buy MGM/UA for $1.5 billion, then sell United Artists back to Kerkorian, who would sell a minority stake to the public.