This started as a quick post on the impact Kirk Kerkorian has had on how I view activist investing, but has quickly turned into a couple thousand-word Ode of sorts. The full PDF version of the mini-ebook is available here.
Part I: The Making Of A Visionary
Kirk Kerkorian passed away on June 15, 2015.
The activist community lost an icon. But in reality, the entire investing industry should be mourning his passing.
When you hear the term corporate raider you think of a Carl Icahn or even Nelson Peltz from the 80s, and some of you true ballers know Victor Posner and Asher Edelman.
But Kirk was making deals when Carl Icahn was still in diapers. Icahn was four years old when Kirk had already dropped out of school and been working for half his life.
Kirk wasn’t well known by everyday investors. He liked it that way. He could walk into any of his casinos and hotels and never be noticed.
Former SVP of MGM, Peter Bart, recounted Kirk from the 90s, calling him an enigma. He wasn’t a showman like Steve Wynn, never naming a hotel-casino after himself.
Mainly, because he wasn’t fueled by the public spotlight like Warren Buffett or Carl Icahn, but rather, he was fueled by the art of the deal, win or lose. Lee Iacocca called Kirk a “...born gambler with a sixth sense for sniffing out value. Doing deals is what keeps him alive.” And it kept him alive for 98 years.
Born to immigrants, Armenian was Kirk’s first language. He isn’t “well educated” by Wall Street standards, never making it past the eighth grade. Kirk once said, “I wish I could talk like Donald Trump or Steve Wynn. Hell, I’d love it.”
Carl Icahn likes to talk about his roughneck childhood in Far Rockaway Queens and the stacked odds he had against him, quoted as saying, “My parents never thought I’d amount to much.” But any man that goes to Princeton University has been afforded some opportunities.
Ahorn Kerkorian, Kirk's father, was a fruit broker in LA, forced to move the family every few months because they couldn’t pay the rent. And while Icahn dropped out of New York University School of Medicine after three years, Kirk dropped out of Jacob Riis, the delinquent boys school, in eighth grade.
After dropping out of Jacob Riis, Kirk turned to boxing, ultimately becoming a Pacific amateur boxer. His nickname was Rifle Right Kerkorian and he ended his career with a 29-4 record. But it wasn't until after boxing and during the 1940s that Kirk really started his hustle.
Part II: The Hustle begins
During the 40s, Kirk really started his hustle. After he quit boxing, Kirk took an interest in flying. He cut a deal with a flight school owner where he’d get flying lessons in return for doing work on the owner’s farm. After six months of shoveling manure, Kirk had a commercial pilot’s license.
He tried his hand at being a flight instructor, but needed more of a thrill. He signed up with the Canadian Air Force to fly risky missions in World War II. The risky trips paid fairly well, but for good reason. The trips included flying Mosquito bombers from Canada to England, with only about one-in-four actually making the trip due to the long distance and treacherous weather. In just over two years, Kirk flew over 30 missions.
After the war, he used the money he saved up from the missions to move to Vegas and buy a single-engine plane, which he used to start a charter business. He did the mechanic work, sold the tickets and flew the plane. As his business grew he began buying up more transport planes to grow his LA to Vegas charter business.
This was his first real taste for the potential that gambling had in Vegas. With his charter business profits, Kirk started putting his money to work buying hotels in Vegas.
Kirk owned the Desert Inn and the Strip parcel, which he sold to the company that ultimately turned that property into the Caesar’s Palace in 1966. He built the International Hotel in 1969 [construction pictured above], which is now the LVH on Paradise Road. But it was when the 70s rolled around that Kirk started becoming more of a household name when he first took control of MGM from the Seagram’s family.
Part III: MGM
Kirk might be best known for his dealings with MGM. Kirk first took control of MGM in 1969 with a hostile takeover and has had a unique love affair with the company ever since.
To gain control of MGM, Kirk won a battle against MGM chairman Edgar Bronfman, whose family founded the Seagram empire. Edgar was the chair of MGM for less than a year and only had it because of the Seagram family owned shares of the studio. Kirk bought a 40% stake in MGM for $80 million from the Seagram family and second largest shareholder Time Inc. A staple in the Jewish community, Edgar passed away at 84 in 2013.
Now, Kirk is known for his prowess in Vegas, but when he got involved with MGM in 1969, MGM was a major player in Hollywood. With Kirk in control, he dismantled the MGM movie making business and sold off MGM Records. The real appeal was the MGM Culver City real estate - the location of the former MGM Studios [since bought by Sony Entertainment].
In 1973, he built the MGM Grand Hotel in Vegas, the largest hotel in the world at the time. In the early 1980s, a fire closed down the original MGM Grand.
In the early 80s, Kirk bought United Artists for its library and merged it with MGM, creating MGM/UA Entertainment. Then, in the mid-80s, he sold MGM/UA to Ted Turner for $1.5 billion, roughly $28 a share, while the stock was trading at $9 a share. Just months later, he bought it back from Ted at a huge discount.
Kirk then sold it again in 1990 for $1.2 billion to Giancarlo Parretti. Ultimately, Giancarlo fell on hard times [money wise] and had to sell it to the French bank Credit Lyonnais in 1992. Kirk stepped in and bought MGM/UA from Credit Lyonnais in 1996.
In the meantime, Kirk was still in control at MGM Resorts, building the MGM Grand in 1993 - the largest hotel in the world at the time. Kirk built the largest hotel in the world on three different occasions, once in 1969, once in 1973 and then in 1993.
In 2000, MGM bought Mirage Resorts from Steve Wynn. Few people realize it, but Kirk was the real king of Vegas. Then, in 2005, Kirk sold MGM/UA to a consortium of private equity firms and Sony Corp. for $5 billion.
He was still MGM Resorts’ majority shareholder until 2009 when he dropped his stake from 54% to 37%, and eventually whittled it down to the current 16.2%.
Per his will, Kirk’s holding company, Tracinda Corp. (named after his two daughters Tracy and Linda), will be selling its 16.2% stake in MGM. Kirk’s legacy doesn’t end there, however.
Part IV: Fade to black
Kirk approached dealmaking with a chip on his shoulder.
He was a truly an unwanted child. His mother, Lily Kerkorian, was told to take scalding baths to induce an abortion. She did it. It didn’t work.
Kirk was resilient, even before birth.
Nine days after his 98th birthday, death finally caught up to Kirk. But not before this true corporate raider put his mark on the investing industry.
His father, a fruit broker in LA, moved the family around every few months because they couldn’t afford rent. This appears to have helped teach Kirk an important lesson in life, applicable to investing as well, don’t get attached. Anything and everything can be taken away.
But Kirk wasn’t perfect. He once invested $50,000 in a Vegas hotel during his early days, but ultimately lost it all. However, another lesson he learned from his dad’s failures that softened the blow of losing $50,000 was, don't bet everything you have on one roll of the dice, because if you fail you won't have anything left to bet next time.
Kirk had the ultimate sixth sense: The ability to see around corners.
Many overlook Kirk’s foray into autos, where he teamed up with Lee Iacocca in the 90s to make a hostile bid for Chrysler [Iacocca was the former Chrysler CEO]. Kirk’s advisor, Michael Tennenbaum of Bear Stearns, was dumbfounded when Kirk wanted to invest in the auto space in the early 90s.
At the time, Chrysler was the number three automaker, with a hefty dead load. Tennenbaum recommended having Bear Stearns have a closer look at Chrysler for him. Kirk refused and Tennenbaum complained to then Bear Stearns’ chairman, Alan Greenberg. Greenberg told Tennenbaum, “Don’t tell Babe Ruth how to hold his bat.” Over the next couple years, shares of Chrysler more than tripled.
Kirk is often compared to Howard Hughes, who also flew planes, owned a Hollywood studio, an airline and Vegas casinos. Kirk and Howard actually met. Yet, Kirk remained humbled by Howard, noting that "this guy broke real speed records. He designed airplanes. He was a great engineer. He did huge things."
Kirk is a big reason I do what I do. He was a true trailblazer. A true corporate raider and visionary, very much unlike some of the mickey mouse stuff we see from today's activist investors.
Kirk Kerkorian. The self-made billionaire. The Armenian. The enigma. The reason.