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  • Kerkorian takes casino crown

    Kerkorian takes casino crown
    By Chris Woodyard, USA TODAY

    USA Today
    June 17 2004

    Las Vegas has always had its share of dreamers and big shots, but
    never one quite like Kirk Kerkorian. As majority stockholder of
    MGM Mirage, he would have had every reason to publicly join in the
    hoopla Wednesday about Mandalay Resort Group's acceptance of MGM's
    $4.8 billion cash buyout offer.

    The deal makes Kerkorian the mogul among moguls: He'll control more
    Las Vegas hotel rooms than Howard Hughes or Stephen Wynn could ever
    assemble. If the deal passes regulatory muster, MGM will become the
    world's largest gaming company. It will lord over 11 casino resorts on
    the famed Las Vegas Strip alone, including jewels such as Bellagio,
    Mandalay Bay and Luxor along the hottest stretch. Kerkorian's empire
    would extend to 17 other gambling halls in Nevada, elsewhere in the
    USA and Australia.

    "This is the king of all deals in the gaming business," says Rod
    Petrik, gaming analyst with Legg Mason. "He will be the No. 1 operator
    on the Strip, with the best properties."

    Even in triumph, Kerkorian, 87, characteristically stayed out of the
    limelight. At an age when most people are retired, Kerkorian struck
    his biggest casino deal and declined to be interviewed about it.
    That's in contrast to the flamboyance that has marked Strip tycoons
    such as gangster Bugsy Siegel, who opened the Flamingo as the Strip's
    first flashy casino in 1946.

    Mandalay's board approved the deal Tuesday night amid antitrust
    concerns. MGM Mirage CEO Terrence Lanni said in an interview that his
    board is "very comfortable" with lawyers' assurances that antitrust
    issues won't be a problem.

    MGM is paying $71 a share cash, in a deal that, along with
    convertible securities and assumption of debt, is valued at $7.9
    billion. Wednesday, MGM shares fell 62 cents to $48.88. Mandalay
    dropped 8 cents to $67.80, short of the $71 acquisition price, in
    recognition of the year it could take for the deal to close and the
    chance that regulators could interfere.

    Besides the potential to own half the 75,000 rooms on the Strip,
    MGM would acquire about 2 million square feet of meeting space
    in the nation's largest convention city. MGM would also become
    better positioned at the high and low ends of the gambling market,
    better able to attract $500-a-hand blackjack players and nickel-slot
    aficionados alike. That helps spread the risk as Wynn is about to
    open a megaresort on the north end of the Strip next year, which
    could siphon the most profitable high rollers.

    "I'm very excited," Lanni says. Mandalay "has wonderful properties
    and great brands."

    The consolidation comes as greater Las Vegas, one of the nation's
    fastest-growing metropolises, continues to attract new visitors.

    The Mandalay acquisition is Kerkorian's second big casino deal in
    four years. In 2000, MGM acquired Wynn's Mirage Resorts for $4.4
    billion. Then, as now, Kerkorian stayed behind the curtain.

    He is publicity-shy but not reclusive. The Southern Californian plays a
    mean game of tennis, buys a ticket and stands in line for movies and is
    known to frequent plush but unflashy restaurants. Like Howard Hughes,
    he's a former pilot who dallied in the movie business. Unlike Hughes,
    he hasn't locked himself in a hotel casino penthouse, grown a long
    scraggily beard and shunned all but his closest cronies.

    Chasing deals

    For him, the elixir of life is love of the deal. The bigger, the
    better. Among the builders of modern Las Vegas, "Kerkorian is one
    of the most enigmatic and interesting figures," says Hal Rothman,
    a history professor at the University of Nevada-Las Vegas. "He is
    uncanny in his ability to read the market."

    While others ignored Las Vegas as a garish, sweltering pool of
    excess, Kerkorian saw how both the masses and the elite would come to
    embrace it. In the course of amassing a $6 billion empire, Kerkorian
    has constructed the world's largest hotel on three occasions: the
    International, which later became the Las Vegas Hilton, in 1969;
    the MGM Grand, now Bally's, in 1973; and the present MGM Grand in 1993.

    "He's the smartest man I know," says Alex Yemenidjian, CEO of Kerkorian
    film studio Metro-Goldwyn-Mayer. "It takes three minutes for him to
    figure out something that takes me three days."

    Yemenidjian, who speaks to Kerkorian by phone daily and plays tennis
    with him most weekends, adds: "I don't know anybody else who has
    created more jobs in Las Vegas or been more charitable."

    Kerkorian, No. 65 on Forbes list of billionaires, has, without fanfare,
    donated at least $150 million, often to his ancestral homeland
    of Armenia.

    Through his Tracinda holding company, named after his daughters Tracy
    and Linda, he owns 57% of MGM Mirage. He also has large holdings
    in DaimlerChrysler, which he is suing for $1 billion for allegedly
    defrauding investors in the 1998 merger between the giant automakers.
    A verdict is expected in the fall.

    He keeps residences in Los Angeles and Las Vegas. He's involved in
    his businesses but doesn't dabble in details. He's "a very big-picture
    person," Lanni says.

    Kerkorian came to know Las Vegas the way most first see it: as a
    gambler. The Fresno-born son of an Armenian immigrant, Kerkorian was
    a scrappy boxer as a youth and later ferried bombers from Canada to
    England during World War II for the Royal Air Force.

    In 1947, the year Siegel was shot and the Flamingo started showing
    a profit, Kerkorian paid $60,000 for a plane to shuttle movie stars
    and high rollers. He built it into a $104 million charter business
    that was sold to Transamerica in 1966. He used the profits to build
    the International and buy Metro-Goldwyn-Mayer film studio. He would
    buy and sell it three times.

    As Kerkorian was about to emerge as a force in Las Vegas, Hughes
    was king. Hughes bought some of the biggest casinos of the time,
    including the Desert Inn, Sands, Landmark, Frontier, Silver Slipper
    and the Castaways. All were puny compared with the room counts of
    today's giants.

    Fire dealt setback

    Kerkorian had setbacks. The hotel then called the MGM Grand,
    predecessor to the one by that name further south on the Strip,
    caught fire in 1980, and 81 people died. "After the fire, he ...
    stayed underground," says John L. Smith, who has written several
    books about Las Vegas and is a columnist for the Las Vegas
    Review-Journal. "It is something that bothered him for a long time."

    Kerkorian eventually re-emerged. His new MGM Grand remains Las Vegas'
    largest resort, with 5,034 rooms. It was built with a concert hall
    and an amusement park for the town's family-friendly era.

    When adding Wynn's former Mirage Resorts properties, including
    Bellagio, Mirage and Treasure Island, MGM made sure the properties
    kept their own personalities. In Mandalay Bay, for instance, Kerkorian
    is getting a property known for its hipness.

    Kerkorian's power play comes as Sin City is enjoying a resurgence. It
    had more than 12.5 million visitors through April this year, up
    7.5% from the first four months of 2003, the Las Vegas Convention
    and Visitors Authority says. "If there's any place to double down,
    Nevada is the place to do it," says analyst Eric Hausler at Susquehanna
    Financial.

    The Mandalay purchase, like any gamble, has risks. Riverboat
    and American Indian gaming are growing, particularly in the key
    California market that feeds gamblers to Las Vegas by bus and car.
    The number of people arriving by air rose about 15% in the first four
    months of 2004, vs. the same period in 2003. Another terrorist attack
    could leave MGM/Mandalay dangerously exposed if there's a plunge in
    visitors. "This will be a huge concentration of properties betting
    on Las Vegas," says Dan Ahrens, portfolio manager of the Vice fund,
    which is 28% invested in gaming stocks.

    Few would bet against Kerkorian even if he's out of sight. "Kerkorian
    is still at the helm here," says author Smith. "The lion never sleeps."

    Contributing: Matt Krantz, Thor Valdmanis and Darryl Haralson
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