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  • Is GM ultimate risk for Kerkorian?

    DetNews.com, MI
    July 1 2006

    Is GM ultimate risk for Kerkorian?

    Billionaire investor appreciates dangers and rewards of betting on
    ailing firms, analysts say.

    Bryce G. Hoffman / The Detroit News

    Global stunner: Link GM, Renault-Nissan


    Kirk Kerkorian, the billionaire General Motors Corp. shareholder
    angling for a three-way alliance of GM, Renault SA and Nissan Motor
    Co., has always liked taking risks.

    But this is a big one, even for a guy who owns 9.9 percent of ailing
    GM, the world's largest automaker.

    Some observers say Kerkorian is drawn to GM by the same thing that
    drew him to the casinos of Las Vegas, where he became one of Sin
    City's original high rollers.

    "It's the love of the game," said Joe Phillippi, president of Auto
    Trends Consulting in Short Hills, N.J. "It's not for money per se,
    because he's got plenty. And it's not about saving a great American
    icon, though he uses that phrase a lot."

    Phillippi thinks Kerkorian is attracted to the automotive industry by
    its scale.

    "Every bet in the automotive business is a billion dollars," he said.
    "It's a very expensive game to play."

    Born in California to Armenian immigrants in 1917, Kerkorian dropped
    out of school in the eighth grade and earned his pilot's license by
    milking cows for a flight instructor. He went to Canada to join
    Britain's Royal Air Force before the United States had even entered
    World War II, volunteering for what many fliers regarded as suicide
    missions in exchange for $1,000 a trip.

    Kerkorian not only lived to tell about it, but also used his earnings
    to start a small charter service back in the States when his tour of
    duty ended. That took him to Vegas.

    In 1962, he bought 80 acres on the Strip for just under $1 million.
    He leased it to the builders of Caesars Palace and made $4 million
    off the deal before selling it to the casino for another $5 million
    in 1968.

    Kerkorian went on to become one of the most successful hotel and
    casino tycoons in Las Vegas and became the 19th richest person in
    America, according to Forbes, which estimates his personal fortune at
    more than $10 billion.

    The billionaire investor manages his vast empire through his Beverly
    Hills, Calif.-based Tracinda Corp. His interest in the automotive
    industry dates back to 1990, when he started buying shares of
    Chrysler Corp.

    Kerkorian soon became Chrysler's largest shareholder and a close ally
    of then-CEO Lee Iacocca. Five years later, with Iacocca retired and
    the company's share price slumping, the pair made a play for control
    of the company. Their hostile takeover bid failed, but Kerkorian did
    convince Chrysler to put a Tracinda representative on its board, buy
    back shares to increase their price and boost dividend payments.

    Kerkorian acceded to what was pitched as Daimler-Benz AG's "merger of
    equals" with Chrysler in 1998. But he later sued the new company,
    DaimlerChrysler AG, after then-CEO Juergen Schrempp told a London
    newspaper he called the deal a "merger" just to get it done.

    Kerkorian, represented on Chrysler's board, claimed he had been duped
    into supporting what had all along been a straight acquisition of
    Chrysler. From the beginning, the Germans referred to the deal as
    "die Uebernahme," or the takeover.

    Last year, in a closely watched case, a federal judge ruled against
    Kerkorian. But John Casesa, who follows the industry as a principal
    of the Casesa Shapiro Group LLC in New York, said Kerkorian had
    little to regret.

    "I doubt very much it would have happened without him," Casesa said.
    "He did get them to sell the company a high price. He made a lot on
    that deal."

    Last year, Kerkorian set his sights on GM. Already a major
    shareholder, he began increasing his stake in the company even as
    other investors were abandoning it. By December, he had amassed 9.9
    percent of GM's shares and was ready to start shaking things up.

    In January, Tracinda demanded that GM cut its dividend payments in
    half, cut executive compensation and consider selling off some of its
    weaker brands. The company agreed to the first two demands. A month
    later, Kerkorian forced GM to give Tracinda representative Jerry York
    a seat on its board.

    Kerkorian's moves were seen as a challenge to GM Chairman and CEO
    Rick Wagoner, even though the savvy mogul insisted in regulatory
    filings that his interest was purely "passive."

    "They're persistent in pushing their agenda," Casesa said. "These
    guys will not let up."

    Why does Kerkorian do it?

    Casesa said Kerkorian is a contrarian investor who fully appreciates
    the risks and rewards of betting on troubled companies like GM, and
    Chrysler before it. When he invests in a company, it is usually with
    an eye to altering the corporate course to boost share price and book
    a profit on his usually sizable investment.

    "It is hard to rival buying into Chrysler at the bottom but he
    certainly has been one to see the restructuring alternatives on the
    other side of the blind panic that often creeps into these
    situations," said Glenn Reynolds, an analyst with CreditSights, a New
    York-based research firm. "He buys when others run scared, and he
    uses his leverage or even the fear of his leverage to effect change."
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