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Lion's shareholder Kirk Kerkorian driven by the deal

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  • Lion's shareholder Kirk Kerkorian driven by the deal

    21st century mogul

    Lion's shareholder Kirk Kerkorian driven by the deal

    Metro Goldwyn Mayer (MGM) 80^th Anniversary Supplement

    April 19-25, 2004
    Pgs. 5, 58, 62, 66

    By Jack Egan

    At 86, Kirk Kerkorian is six years older than MGM, which he owns for the
    third time since first venturing into the Lion's den back in 1969. In
    the interim he's sold MGM twice - to broadcast pioneer Ted Turner and to
    Italian financier Giancarlo Parretti - only to buy it back later at
    bargain prices, making a pretty penny along the way. A strategic
    speculator of the first order, Kerkorian has had the knack of almost
    always buying low and selling high, whether it's airlines, studios or

    `Kirk Kerkorian's not a builder like Lew Wasserman was with MCA - he's
    an investor, and a very good one,' observes Tom Pollock, who worked
    under Wasserman as head of Universal, and now has his own production
    company. `If you had bought MGM stock every time Kirk bought, and sold
    every time Kirk sold, you'd have done very well.'

    Indeed, when it comes to the movie business, the view is that
    Kerkorian's done far better on the business side than the movie side.
    Under his ownership, the Lion has been a revolving door for production
    chiefs - James Aubrey, Frank Yablans, David Begelman and Frank Mancuso,
    to name just a few. And overall they turned out far more misses than
    hits. MGM's only consistent success has been with the inexhaustibly
    lucrative James Bond franchise, which MGM inherited when Kerkorian
    bought United Artists in 1981 and merged the two companies to create

    Indeed, Kerkorian's own rise from a Fresno community of Armenian
    emigrants to self-made billionaire, which makes Horatio Alger seem like
    an underachiever, is a better plotline than many of the movies the
    studio has released while he's owned it. Along the way he's been a
    successful pugilist and an intrepid World War II flyboy.

    Beyond Hollywood

    Ultimately he's been a master of maneuver, parlaying a single aircraft
    purchased for $60,000 in 1947 into what is today a $6 billion empire.
    (Forbes Magazine's 2004 tally of the world's billionaires ranked
    Kerkorian 65^th with his entertainment, casino and other investment
    stakes estimated at around $6 billion. He was 33^rd on Forbes' most
    recent list of the 400 richest Americans, making him the most moneyed of
    today's Hollywood moguls.)

    Kerkorian's kingdom these days goes well beyond Hollywood. Through his
    Tracinda holding company, named after daughters Tracy and Linda, he owns
    55% of MGM Mirage, the world's biggest and most successful hotel-casino
    operation. The empire stretches as far as Stuttgart, Germany, worldwide
    headquarters for Daimler-Chrysler, of which Kerkorian owns a sizable
    chunk. (Chrysler's biggest shareholder when it combined with Daimler in
    1998, he reportedly made billions of dollars on the transaction, but is
    suing Daimler for $1 billion for allegedly defrauding shareholders by
    misrepresenting the terms of the original deal. A verdict in the
    recently concluded trial isn't expected until the fall.)

    Despite or perhaps because of Kerkorian's reputation as a master
    dealmaker, it's taken a while for Kerkorian to gain respect in
    Hollywood. Initially he was dismissed by many in Tinseltown as a gambler
    who treated MGM like a lucky slot machine. Or he was viewed as a
    short-term operator, slicing and dicing MGM, selling off Dorothy's ruby
    slippers along with the rest of the once-storied studio's fabled assets.

    Meanwhile, his penchant for privacy has caused him to be characterized
    as reclusive and mysterious, a Wizard of Odd. Those who've known him for
    a long time scoff at such a caricature, viewing him as a wiz of finance.

    `Kirk is not a Hollywood person, he's a money person,' DreamWorks
    partner David Geffen says. `He's a businessman, he's not nostalgic and
    sentimental. And he's not reclusive. He's just very low profile, that's
    a big difference - he's just not interested in attention of any kind.'

    Far from reclusive

    `He's not reclusive, he's not Howard Hughes,' agrees MGM chief executive
    Alex Yemenidjian, a close friend and a longtime business associate, for
    whom Kerkorian has been a mentor. `He's just private, and quite shy.'

    Far from being invisible, he is often seen around Los Angeles, having a
    drink at the Polo Lounge or dinner at Dan Tana's. He's even been seen
    standing for a movie at the local cineplex.

    `In all the years, he's never asked me to have a screening for him, not
    once,' says Yemenidjian. `He prefers to go see movies in the theater,
    even ones from MGM, just like an ordinary person.'

    In Las Vegas he's also been seen waiting in line for a show or restaurant.

    Though he's 86, age hasn't withered Kerkorian's physical fitness nor his
    legendary acuity; he's said to do the numbers for a deal in his head.

    `He's the youngest man of his age I've ever known' says a marveling
    Geffen. `He never stops.'

    Kerkorian supposedly jogs daily and is an avid singles and doubles
    tennis player, hosting a weekend round robin for a group of close
    friends at his Beverly Hills mansion.

    `His tennis game is better than it was nine months ago,' says
    Yemenidjian, a regular at the get togethers.

    On the business side, Yemenidjian says he talks with Kerkorian on the
    telephone twice a day or even more, `but only about the big picture.'
    Which means wheeling and dealing. Kerkorian leaves day-to-day operations
    of his enterprises almost entirely to his managers.

    Unlike many donors, Kerkorian hides his light under a bushel, refusing
    to receive any acknowledgement. `He feels if you receive something in
    return, it's not really charity,' adds Yemenidjian.

    Armenia has been the biggest beneficiary of Kerkorian's munificence.
    According to James Aljian, chairman of Kerkorian's Lincy Foundation
    (also named for his two daughters), gifts and loans to Armenia over the
    past two years total $150 million.

    The money has gone to rebuild the country's roads; put up 3,500 housing
    units in an area that had been devastated by a major earthquake in 1988;
    and restore an opera house, museums and many other civic buildings in
    Yerevan, Armenia's capital. Offers to name various landmarks after
    Kerkorian, from the biggest boulevard in Yerevan to the country's main
    airport, were turned down. One school that recently renamed itself
    Kerkorian College was quietly asked to rescind the honor.

    Selfless munificence

    And despite the historic enmity between Armenia and Turkey, Kerkorian
    gave $1 million to Turkey after its devastating earthquake in 2002.

    Many charities, over a wide range of interests, in this country have
    benefited from his generosity. Prominent is the Motion Picture and
    Television Fund (MPTF), which runs a home and hospital for Hollywood's
    elderly in L.A.'s San Fernando Valley.

    Kerkorian was a major donor in two of the fund's largest campaigns, for
    the Wasserman campus and the Fran and Ray Stark Villa. `What's so
    interesting is that he never asks for anything in terms of recognition,'
    says Ken Scherer, executive director for the MPTF.

    Kerkor Kerkorian (his given name) was born in Fresno in 1917, and grew
    up amid a small colony of Armenian immigrants who had left their
    homeland and moved to the San Joaquin Valley around the turn of the

    His parents were raisin farmers. When times got tough, the family moved
    to Los Angeles in the 1920s. Kerkorian dropped out of what he called `a
    semi-reform school' at 13. With the onset of the Depression, he got a
    job in Sequoia National Park working for the federal Conservation Corps.

    A first lucky break came when he was taken under the wing of legendary
    aviator Florence `Pancho' Barnes, Hollywood's first woman stunt pilot.
    He showed up without a dime at her San Fernando Valley ranch, and she
    put him up free at what she called her Happy Bottom clubhouse for
    down-on-their-luck pilot friends.

    In return for working her alfalfa fields, Kerkorian received free flying
    lessons, which he would put to good use. A successful stint as a
    welterweight boxer followed; he won 30 of 33 bouts and earned the
    nickname `Rifle Right' for his precise punch, a prescient predictor of
    his later success in bearing down on targets as an investor.

    The aviator

    During World War II, he enlisted in the British Royal Air Force,
    attaining captain rank ferrying planes from Canada to England over the
    dangerous North Atlantic.

    After the war ended, he sold scrap airplanes in South America, earning
    enough to buy a transport plane for $60,000. He used that to launch a
    pioneering charter service between L.A. and Vegas. The fledgling
    enterprise eventually grew into Trans Intl. Airlines. Kerkorian sold
    that for $104 million to Transamerica Corp. in 1969. That sum proved to
    be a more than sufficient grub stake to strategically target Hollywood
    and Las Vegas as a serious investor.

    In 1969, Kerkorian began accumulating shares of Metro-Goldwyn-Mayer (he
    attained a controlling stake five years later). That same year he
    splashily opened the International Hotel in Las Vegas, the most massive
    hostelry to be launched up to that point in the burgeoning gambling
    capital. Kerkorian eventually sold it to Hilton.

    Over the next three decades he accumulated an ever-expanding portfolio
    of properties., buying and selling virtually every big-name hotel in town.

    Under the MGM Grand umbrella (the gambling company had years before been
    cleverly rebranded with the movie studio's universally known name),
    Kerkorian constantly reshuffled his Vegas holdings, at one time owning
    virtually every well-known hotel in town.

    The culminating coup came in 2000 when Kerkorian bought entrepreneur
    Steve Wynn's Mirage Resorts for $6.4 billion. Overnight that transformed
    his already sizable MGM Grand company into what is today the world's
    biggest and most highly regarded gambling company, MGM Mirage.

    Exit strategy

    For Kerkorian, the third time around with MGM has not yet been the charm
    he might have hoped. He's estimated to have invested some $3 billion and
    not yet hit the jackpot.

    The guessing around town and on Wall Street is that he's been trying to
    find a way out. `He's looking for an exit strategy, which is what all
    the recent maneuvering has been about,' says Hal Vogel, an expert on
    entertainment companies, head of Vogel Capital and a longtime Kerkorian
    watcher. `That may take some time, because for various reasons nobody
    today can do a deal that size, but Kerkorian is nothing if not patient,
    and since he's taking a big slug of capital out, he can afford to wait a

    Kerkorian is working to refinance his MGM stake, much as shareholders
    would refinance their house. That's what the latest MGM dividend ploy is
    all about. Yet to be officially announced, the plan is to pay a $6 to $9
    cash dividend per share to MGM stockholders. Since he owns over 70% of
    the company, that would net Kerkorian somewhere between $1 billion and
    $1.5 billion. And under current tax laws, that's tax free. The company,
    one of the few anywhere that can say it's debt free, would borrow to
    finance the pay-out at current low interest rates.

    Over the last few years MGM has been holding talks with a number of
    other entertainment companies, such as Time Warner, about either being
    acquired or merging. And last year, in a surprise move, Kerkorian
    entered the bidding war for Vivendi Universal with a $10.5 billion offer
    that along with others wound up being topped by GE. `The Vivendi bid was
    also a form of exit strategy,' notes Vogel, `since it would have allowed
    him to profitably reshuffle the MGM assets, but only at the right price.'

    So will there even be an MGM five years from now? `I'm not an
    odds-maker, but I hope so,' says Yemenidjian, who says he'd rather look
    for acquisitions than find a way to merge. But then he hedges his
    statement. `Ultimately I'll have to do what's best for my shareholders.'

    And in one word, that's Kerkorian.

    PHOTO CAPTION (Pg. 5) - The Last Tycoon: Kirk Kerkorian arrives at the
    J. Caleb Boggs Federal Building in Wilmington, Delaware to testify in
    his lawsuit against Daimler Chrysler in December. As Kerkorian goes, so
    does MGM.