The Dealmaker Rides Again

By Daren Fonda

PROFILE

Without being in Kirk Kerkorian's mind, it's hard to say why a secretive 87-year-old Beverly Hills billionaire would suddenly buy shares in an industrial dinosaur like General Motors. So let's say this: The man doesn't like sitting in the backseat, not in his personal life, certainly not as a businessman. Most mornings he drives himself to work in a Jeep Grand Cherokee, arriving at the office by 10:30. He can afford a chauffeur, of course, since he's worth an estimated $9 billion, a fortune built over a half-century of buying and selling assets from airlines to real estate, casinos, hotels, movie studios and automakers. Yet while many octogenarians may aspire to improve their golf score, Kerkorian keeps thinking big and shows no signs of slowing down, not when it comes to driving, investing or his favorite sport, tennis, which he plays most weekends, still packing a powerful forehand. "He's a real competitor" on the court, says George Mason, a longtime business colleague and tennis pal.

Kerkorian took another big swing last week. His investment vehicle, Tracinda, named for daughters Tracy and Linda, announced it had bought 22 million shares of General Motors and planned to buy up to 28 million more, for nearly a 9% stake, which would make Kerkorian one of GM's largest and most potentially nettlesome stockholders. Why GM, and why now? Just a couple of months ago, when a friend broached the idea, the billionaire brushed it off. "He said, 'They have a lot of problems,'" recalls Mason. GM stock has been a dud, and despite popping 18% after Tracinda announced its stake, the company received a major blow last week when Standard & Poor's downgraded GM's credit rating to junk (along with Ford's). "Kirk thinks it's a strong company, with strong cash flow and strong assets," says his lawyer Terry Christensen. "He thinks the management can solve GM's problems."

That Kerkorian doesn't even drive a GM car suggests he may not be in love with the goods. Loaded down with excess factory capacity, waning SUV sales and crushing health-care liabilities, the company is no quick turnaround play. So you have to wonder, What is he thinking? Kerkorian isn't talking--he has been virtually silent with the press since 1971. But there was no shortage of speculation on Wall Street and in Detroit. The scuttlebutt: that Kerkorian will try to force GM to spin off its lucrative financing unit, GMAC; that he will try to line up a murderers' row of billionaires and private equity firms for a hostile takeover; that he will make such a pest of himself that GM will buy him out for a premium, just so he'll buzz off.

Crazy as all this sounds--we're talking GM here, the world's largest automaker--Kerkorian practically wrote the how-to book on such tactics. In the late '70s he loaded up on shares of Columbia Pictures, then turned into such a litigious nightmare that Columbia bought his stake for a 50% premium, a settlement that Fay Vincent, then CEO of Columbia, called "greenmail" (a characterization disputed by a Kerkorian spokesman). In the '90s Kerkorian was at the center of a gear-grinding saga with Chrysler. After buying a big stake and standing by for a few years, he launched a hostile takeover bid with Lee Iacocca in '95, finagled board representation and, most recently, wound up in a federal court in Delaware, arguing that he had been duped by management into supporting Chrysler's merger with DaimlerBenz (a case he lost last month; his lawyers are appealing).

Christensen promises that Kerkorian will be a gentlemanly, silent partner this time. "We made a courtesy call to GM senior management and had a friendly conversation," he says. "They said, 'welcome aboard.'" In a perverse way, Kerkorian may be the bogeyman GM needs, allowing CEO Rick Wagoner to play the good cop in negotiations with GM's union, with the specter of a Kerkorian-led breakup in the background. GM can now go to the United Auto Workers and say "you can deal with nice Rick Wagoner or Gordon Gekko," says auto analyst Stephen Cheetham of Bernstein Research.

Whatever Kerkorian's motives, associates say his intentions are clear. "Kirk tends to be a long-term investor, and don't let the fact that he's 87 fool you," says friend Mason, suggesting that Kerkorian will wait patiently for a GM turnaround. Says Ralph Whitworth, a financier who worked with Kerkorian in the '90s: "He's not a control freak. He just likes to get good returns."

No question, Kerkorian still gets a kick out of high-stakes deals. In 2000 his MGM Grand bought Steve Wynn's Mirage Resorts for $6.4 billion, and last June Kerkorian snapped up the Mandalay Resort Group for $4.8 billion, giving him control of 11 hotel-casinos on the Strip and more than half the gambling action. Last year Kerkorian sold his stake in the MGM movie studio for $5 billion to a consortium led by Sony. In fact, Kerkorian's dalliance with MGM over the years reads like a sordid back-lot love story. He first bought shares in the studio in 1969, sold MGM/UA to Ted Turner in '86, bought back most of it a few months later, unloaded it to an Italian financier in '90 and bought it again in '96. Whoever got stiffed along the way (and he's been criticized for gutting the studio), it wasn't Captain Kirk; he earned $500 million just buying MGM from Turner. "He's got ice water in his veins," says a rival. "For him, it's always about the deal, not the business."

Kerkorian's childhood, rough and rootless, may have instilled in him that lifelong drive to get ahead. Born to Armenian immigrant farmers in Fresno, Calif., he moved at least 20 times as a kid, his parents often struggling with the rent. In junior high, he was expelled for fighting and truancy. After dropping out, he learned to box ("Rifle Right," they called him), and during World War II he shuttled planes across the Atlantic for Britain's Royal Air Force. Back in California, he bought and sold refurbished aircraft and started an air service ferrying gamblers from Los Angeles to Las Vegas. On layovers in Vegas he took an interest in gambling, especially craps, and parlayed the proceeds from various ventures into real estate and casinos, seeing promise in the town "when it was just dirt," says a colleague. By the early '70s, well into his second marriage, to a former Vegas show girl, he was buying movie studios, investing in gambling businesses and making bids for airlines. Eventually he moved on to Chrysler, though Iacocca once said "he really doesn't have any interest in cars."

For all his headline-grabbing skill as a dealmaker, Kerkorian is often described as a recluse. Vegas real estate tycoon Irwin Molasky, an old friend, says it's more that Kerkorian tends to be quiet and unassuming. He hasn't been entirely able to shield himself from the tabloids, however. In 2002 he was involved in a tawdry paternity case after his third wife, tennis pro Lisa Bonder, to whom he had been married for a month, admitted faking DNA tests to prove he was the father of her child. Still, when he attends boxing matches, Kerkorian sits up in the cheap seats, not at ringside. "He wants to be in the background," says Molasky. For a guy who may be about to rumble with General Motors, that may be his toughest act yet. --With reporting by Laura A. Locke/ San Francisco and Jeffrey Ressner/Los Angeles

With reporting by Laura A. Locke/ San Francisco, Jeffrey Ressner/Los Angeles