A Bold Play by Mr. Inside and Mr. Outside
One is a financier who bought and sold MGM studios not once but twice, tangled with Howard Hughes in a two-man contest to dominate Las Vegas, yet is so retiring that a former business associate, scratching for a colorful anecdote, called him “the nicest non-person I’ve ever not known.”
The other is the embodiment of muscular American industrialism, the auto executive who stamped his own brash persona on Chrysler Corp. and whose 1984 autobiography leaped to the top of the bestseller lists and stayed there for 40 weeks.
Now Kirk Kerkorian, 77, and Lee A. Iacocca, 70, an Odd Couple of immigrants’ sons who first met in 1989 when Kerkorian stepped up to bail out Iacocca’s Chrysler and who have remained friends ever since, have shaken the auto business to its roots with a $55-per-share offer for that same company.
“A lot of people say they can’t understand why these two old guys would do it at all,” Iacocca said Wednesday in an interview from Kerkorian’s Las Vegas headquarters. “We don’t need the money, and so on. But he (Kerkorian) likes these things, it helps keep him young.”
Of the pair, Kerkorian is clearly the lesser known, despite his decades of friendships with Hollywood stars and Las Vegas entertainers. By most accounts the former California farmhand and eighth-grade dropout, now worth an estimated $2.5 billion, is a gracious and self-effacing individual with the financial instincts of a shark.
Over his personal qualities there is little debate.
“He is a wonderful friend, wonderfully loyal, and has a brilliant financial mind,” says Patricia Glaser, a Century City lawyer who has represented him in some bruising corporate litigation.
She and Iacocca both cite his sense of humor and dispute his stereotyped image as a “reclusive billionaire”--an image that may derive largely from his aversion to press interviews and to external parallels between his career and that of Howard Hughes.
These include both men’s lifelong interest in aviation--Kerkorian was once the dominant shareholder in Western Air Lines and at one time considered bids for TWA and Pan American--and their huge investments in Las Vegas.
“He’s shy,” said Iacocca. “You don’t go hobnobbing with him every day. But if he’s in town and he wants to have dinner, you go to dinner.”
Kerkorian was raised in East Los Angeles. He dropped out of school in the eighth grade during the Depression to help support his family by taking a job with the Civilian Conservation Corps, a New Deal program that provided manual work for poor youngsters. Just before the war, he got bit by the flying bug and by the time hostilities began he was skilled enough to fly transports across the Atlantic.
Kerkorian’s eye for trading values was honed in the immediate postwar years. In 1947, as recounted by former MGM executive Peter Bart in his book, “Fade Out,” about the studio’s collapse, Kerkorian bought a single-plane charter service flying one route--Los Angeles to Las Vegas--for $60,000. In 1968, he sold what was then known as Trans International Airlines, its fleet and route map having expanded tremendously, to Transamerica Corp. for $104 million.
Meanwhile, he had begun investing in Las Vegas, first with a plot of vacant land on the Las Vegas Strip that he traded for an interest in the hotel to be built on it, Caesars Palace. Three times in 24 years he built what at the time was the world’s largest hotel in Las Vegas, beginning with the International, now the Las Vegas Hilton, in 1969. (The plans for the International reportedly grated on Hughes, who countered with a project to outdo Kerkorian with an even larger hotel.)
Kerkorian sold the International in 1971 and topped it with the first MGM Grand in 1973, selling it to Bally’s in 1986. Finally, in 1993, he opened the 5,005-room, $1-billion behemoth that is the second MGM Grand.
But if the Las Vegas projects have been his most physically grandiose, Kerkorian’s most elaborate and controversial deals have tended to involve the movie studios.
Over the years he made unsuccessful ownership runs at Twentieth Century-Fox and Columbia Pictures, but MGM seemed to be a quarry with a special allure for the Armenian immigrant’s son. In fact, after having sold off most of the studio’s assets, he retained the right to place its name on his luxury airline, the recently folded MGM Grand Air, and his Vegas properties.
He even fought off an angry lawsuit from Walt Disney Pictures, which thought it had exclusive rights to place the MGM name on theme parks, so he could call his Las Vegas amusement park “MGM Grand Adventures.”
Kerkorian’s affair with MGM began in 1969, when in a hostile takeover he bought 40% of the studio for $82 million, added United Artists for $380 million in 1981, then combined the two companies and sold them to Ted Turner in 1986 for $1.5 billion.
Five months later he bought back all of MGM/UA except the MGM film library for $480 million, only to sell off the studio again for $1.3 billion to Giancarlo Parretti’s Pathe Communications Corp. in 1990.
Both sales landed Kerkorian in court.
After the first one, MGM shareholders contended that he had grossly undervalued the UA film library by $100 million when he repurchased it while raising his MGM stake from 51% to 80%. The deal, argued shareholder attorney J. Michael Hennigan, had the effect of enriching Kerkorian by $50 million. Kerkorian settled the suit, one day before he was scheduled to take the stand, for $35 million.
Still, his deposition testimony and that of his rubber-stamp board members afforded a rare glimpse into his management system.
“He testified that he had very little memory about the key events and that the key decisions were made by others,” Hennigan recalled Tuesday. “We were delighted with that testimony because we thought nobody would believe him.”
When MGM board member Art Linkletter, the television personality, testified that Kerkorian had never really been involved with board decisions, Hennigan asked him if he recalled how Frank Rothman, a longtime Kerkorian associate, became MGM/UA’s chairman and chief executive officer.
“He just sort of showed up one day,” Linkletter replied, as Hennigan recalls.
“Do you think Kirk Kerkorian had anything to do with that?”
“You know,” Linkletter answered, “I bet he did.”
The second sale of MGM proved even more convoluted than the first, and has resulted in a billion-dollar lawsuit filed by Credit Lyonnais, the Dutch bank that financed Parretti’s purchase and was left holding worthless debts when MGM-Pathe collapsed in 1991. The lawsuit is pending in federal court in Los Angeles.
In that case, Credit Lyonnais contends that Kerkorian, anxious to salvage the sale after Time Warner Corp. withdrew its agreement to lend Parretti $650 million, sold off licensing rights to the UA library for $625 million, then transferred that sum to Parretti. In return for the $625 million, MGM got Pathe assets that it valued at $625 million but were worth only a fraction of that.
The result of the transactions, the bank alleges, is that Parretti paid over $1.3 billion to Kerkorian to buy an MGM/UA mortally crippled by the licensing sale.
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Iacocca, Kerkorian’s partner in the Chrysler bid, took a more public if mundane path to business success. Like Kerkorian, he was the son of immigrants, born in Allentown, Pa., to Italian-born parents.
Armed with a degree from Lehigh University and a master’s degree from Princeton University, he joined Ford Motor Co., where he was to become responsible for such successes as the Mustang. But after he became Ford’s president, he and Chairman Henry Ford II--another executive with a powerful ego--experienced a widening rift, and Ford fired him in 1978.
Within days, Chrysler came calling. Run into the ground by a series of finance-trained chairmen, the third-biggest U.S. auto company was in such bad shape that, Iacocca said later, had he known the truth he would never have taken the job.
Iacocca persuaded Congress to guarantee $1.5 billion in loans to launch its new “K-car,” and extracted big sacrifices from workers, dealers, bankers and suppliers. Chrysler regained its health, and Iacocca triumphantly paid back the government loans seven years early.
Meanwhile, a series of Chrysler advertisements featuring his blunt manner turned Iacocca into a media star.
But he was also committing some blunders, including ill-advised diversifications financed by Chrysler’s burgeoning cash hoard. As it happens, one of those, the purchase of aircraft manufacturer Gulfstream, led to Iacocca’s and Kerkorian’s first meeting. They were introduced by Allen Paulson, Gulfstream’s owner and later a member of Chrysler’s board.
After a few meetings and some abortive deals, Kerkorian one day in 1989 flew into Detroit with some questions about Chrysler.
“He came in a 727,” Iacocca recalls. “Here was this huge plane and just Kerkorian on it.”
Kerkorian probed Iacocca about Chrysler’s prospects, which then looked grim. The stock had fallen to about $10 a share and a recession was biting hard. Iacocca assured Kerkorian that the company was not facing bankruptcy and that its upcoming product line was great, and Kerkorian responded some months later with a $300-million stock purchase--a deal that raised Chrysler’s luster considerably.
“That started a wonderful relationship,” Iacocca said. “He has never sold one share of Chrysler stock. Everyone should have a shareholder like him.”
To be sure, Chrysler has been good to Kerkorian. His Tracinda Corp. (named after his daughters, Tracy and Linda) holds 36 million shares, or just over 10%, of the company’s stock, purchased over a span of five years for $679 million. At Tuesday’s closing price of $48.75, that holding is worth $1.76 billion, or $342 million more than it was only 24 hours earlier.
For all that, Iacocca acknowledges that the purchase of one of America’s leading heavy manufacturers would be a major departure for Kerkorian, one of the business world’s storied traders.
“This is not his bag,” he says. “You can rest assured he won’t be hands-on. He’s not interested in manufacturing per se or the car business, but he thinks (Chrysler is) extremely undervalued.”
Times staff writers James Bates and Donald Woutat contributed to this story.
* INDUSTRY IMPACT: Amid strong results, Chrysler could attract foreign bids. D1
* OTHER COVERAGE: D1, D2, D3
