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  • Kerkorian's vision shaped Las Vegas Strip

    Las Vegas Sun
    March 5 2005


    Kerkorian's vision shaped Las Vegas Strip

    By Liz Benston
    <[email protected]>
    LAS VEGAS SUN
    WEEKEND EDITION

    March 5 - 6, 2005

    Pittsburgh had Andrew Carnegie, Cleveland had John D. Rockefeller,
    Seattle has Bill Gates.

    And Las Vegas has Kirk Kerkorian.

    As a developer, Kerkorian three times built the world's largest hotel
    in Las Vegas.

    And as the majority shareholder of MGM Mirage, Kerkorian made the two
    largest deals in the history of the casino industry.

    After the second deal, MGM Mirage's $7.9 billion buyout of Mandalay
    Resort Group that is expected to close this month, Kerkorian will
    have a majority stake in a lucrative real estate empire of historic
    proportions.

    He'll control 11 major resorts and the largest share of Strip hotel
    rooms, casino space and entertainment venues ever assembled by one
    owner.

    Kerkorian, a fixture on Forbes' list of the richest Americans, had an
    estimated net worth of $5.8 billion last year. His Tracinda Corp.
    holding company, named for his daughters Tracy and Linda, holds about
    59 percent of MGM Mirage's stock, a stake worth $6.1 billion as of
    Friday's closing price.

    Despite his record and wealth, Kerkorian's nearly 40-year Las Vegas
    career is little known by the public, and even by his peers in Las
    Vegas, where strong personalities and new entertainment venues grab
    headlines.

    He avoids the spotlight, rarely giving speeches and leaving
    management up to trusted executives. He is also modest and
    unassuming, typically giving others credit for their role in his
    success.

    "It's just amazing that he's taken Las Vegas to the next level three
    or four times and he can practically walk down the street without
    being recognized," said Steve DuCharme, a casino consultant and
    former member of the state Gaming Control Board. "But that's the way
    he wants it."

    Kerkorian once drove himself to a Gaming Control Board meeting when
    DuCharme was on the board.

    "I think it was a Chevrolet station wagon," DuCharme said.

    Quiet leadership

    His publicity-shy demeanor belies a sharp business sense and an
    ability to time the market, observers say.

    Henri Lewin, a retired casino consultant who ran Hilton Hotels'
    gaming properties in the 1980s, said Kerkorian was always "one step
    ahead" of the competition.

    "The man had more brains than anybody," said Lewin, whose former
    employer bought the International hotel from Kerkorian. "Kerkorian
    knows what the value of a company is and when to buy it. Then he
    knows who to put in to manage it. He doesn't buy anything unless he
    knows he can do better with it."

    Boyd Gaming Corp. Chairman and Chief Executive Bill Boyd said
    Kerkorian "has been a tremendous influence" in the transformation of
    Las Vegas into a resort destination.

    "I've always been impressed by his ability to see where the market
    wants to go," said Boyd, whose father created his own gaming empire
    after arriving in Las Vegas in 1941. "On no less than three occasions
    with the International, the MGM and MGM Grand, his company has
    pointed the way toward Las Vegas' future. And now he's doing it again
    with MGM's planned CityCenter."

    In an industry that has had its share of risk and failure,
    Kerkorian's string of successes and big deals have been a big
    positive for Las Vegas, experts say.

    "He does it so effortlessly that people don't stop and scratch their
    heads in wonderment," DuCharme said. "There's never a concern about
    whether things will get done right and get financed. It just gets
    done."

    Las Vegas Sands Corp. Chairman and Chief Executive Sheldon Adelson --
    No. 60 on last year's Forbes list before a spectacular initial public
    offering of stock raised his net worth by $15 billion -- said he
    respects Kerkorian's ability to weather risk.

    "He's obviously a very shrewd investor and a fine gentleman," said
    Adelson, who has a majority stake in Las Vegas Sands. "We don't play
    tennis together and we don't have dinner together, but we have mutual
    respect for each other."

    The son of Armenian immigrants, Kerkorian dropped out of school to
    box and later discovered flying.

    In World War II, he transported planes from Canada to Great Britain
    as a pilot in the Royal Air Force and later bought his own plane to
    charter passengers to Las Vegas.

    Kerkorian and Hughes

    When Howard Hughes was buying up hotels, Kerkorian was using profit
    from a land sale on the Strip and the sale of his charter service to
    purchase land for the International, which would open in 1967 as the
    world's largest hotel. The Paradise Road property was later bought by
    Hilton Hotels Corp. and renamed the Las Vegas Hilton.

    "The dream of one man -- it's a remarkable story," Nevada Gaming
    Commission member Art Marshall said before the commission unanimously
    approved the Mandalay purchase. The approval marked the last major
    regulatory hurdle for the deal.

    "We've had 40 years of behavior by this principal and their team. I'm
    willing to trust them," Marshall said before entering his vote.

    It was the story of Hughes, the eccentric playboy, and not of
    Kerkorian, that made its way to the silver screen last year. While
    both men were pilots and emerged in Las Vegas around the same time,
    Kerkorian's contribution to Las Vegas is generally believed to be
    much more significant than Hughes'.

    Hughes arrived in Las Vegas in 1966 and, clouded by mental illness,
    bought up six casinos on the Strip while doing little to transform
    them. His purchases of the Desert Inn and other landmark properties
    would be small by today's resort standards.

    "(Kerkorian) doesn't have the mystique of a Howard Hughes or the
    charisma of a Steve Wynn," said David Schwartz, coordinator for the
    Gaming Studies Research Center at UNLV. "Maybe he doesn't get all the
    credit he should have."

    Schwartz said Kerkorian has had a "huge role" in casino history for
    foreseeing future demand for Las Vegas and by building some of the
    world's largest resorts.

    When MGM Grand acquired Steve Wynn's Mirage Resorts in 2000 for $6.4
    billion, the deal set an industry record and established MGM Mirage
    as the largest competitor on the Strip with a 27 percent share of
    hotel rooms and casino space.

    At the time, Mandalay Resort Group -- which owns three of the largest
    hotels -- had about 27 percent of the hotel rooms and about 22
    percent of the Strip's casino space.

    Kerkorian's timing couldn't have been better for the buyout of Mirage
    Resorts. He offered $17 per share for Mirage in February 2000 -- an
    unsolicited offer that was well below Mirage's 52-week high of $26.37
    in May 1999.

    A variety of factors, including less-than-spectacular earnings at
    Mirage's older resorts, had depressed the stock to levels that some
    experts said weren't warranted longer-term.

    Wynn rejected the first offer, but was put in a difficult position of
    refusing a bid that was 56 percent over Mirage Resorts' then stock
    price of less than $11 per share. Analysts warned investors to hold
    out for a higher price. Wynn and shareholders eventually accepted an
    offer of $21 per share.

    MGM Grand sold 46.5 million shares of stock for about $1.3 billion to
    help finance the $6.4 billion Mirage acquisition.

    Tracinda purchased about half of those shares for $609.5 million,
    with the remainder going to financial institutions. The sale reduced
    his holdings in MGM Grand from 64 percent to 60 percent.

    Only 62 percent of Mirage shareholders voted in favor of the deal,
    with many naysayers believing that they could have gotten more out of
    Kerkorian.

    Bidding for Mandalay

    Likewise, MGM Mirage's landmark bid for Mandalay Resort Group was far
    from a slam dunk. While the deal breezed through investigations by
    the Federal Trade Commission and Nevada gaming regulators without the
    companies being forced to sell any Las Vegas casinos, Mandalay
    shareholders could have stopped the deal in its tracks.

    Fewer than 60 percent of Mandalay shareholders approved the deal,
    according to institutional shareholders -- another sign that
    Kerkorian bought at a favorable price.

    Kerkorian's involvement was less overt this time. Historically, low
    interest rates and unprecedented hunger on Wall Street for Las Vegas
    gaming deals are allowing MGM Mirage to finance nearly all of the
    $7.9 billion acquisition with low-interest-rate bank debt.

    Kerkorian is more than just a dealmaker, said Hal Rothman, chairman
    of UNLV's history department.

    In creating MGM Grand, Kerkorian has developed a "visionary profile"
    for the city, Rothman said.

    "What they're really buying is ideas and approaches," he said.
    "That's why he bought Wynn's properties. He has taken Wynn's vision
    and carried it out."

    Rather than micromanaging, Kerkorian has left the management of his
    casino empire to MGM Mirage Chief Executive Terry Lanni and his team.

    "The people under (Kerkorian) are as qualified as the guys on top,"
    Lewin said. "There's not a lot of companies like that. These are blue
    bloods. You will never see them doing something stupid."

    Kerkorian still keeps abreast of his investments, Lewin said.

    Lewin came into contact with Kerkorian when Hilton executives were
    negotiating with Kerkorian's executive Fred Benninger to buy the
    International hotel.

    "Kerkorian came into the meeting room and he made comments about the
    property that we didn't even see, and we went through all the books,"
    Lewin said. "We went through the whole hotel and didn't see it. He
    said he didn't have to go to the hotel to know what was going on. He
    said, 'I have my people and I have the books, and I look at the
    books.' I look dumb next to him."

    Instead of incorporating the Mirage Resorts properties into MGM
    Grand, the company set up a separate Mirage operating division and
    allowed those properties to be run much like they had been, Rothman
    said. The tactic was aimed at encouraging competition and innovation.

    "What size does is breed uniformity," Rothman said. "Size can
    discourage innovation."

    MGM Mirage executives said they expect to do the same with Mandalay
    Resort Group. All company casinos "compete mightily against one
    another," with presidents at each property compensated based on
    individual financial results, President and Chief Financial Officer
    Jim Murren told state Gaming Control Board members at the hearings.

    For all his visionary might, Kerkorian may not have all the answers.

    In an interview prior to Control Board approval of the deal,
    Kerkorian said he was "very much" surprised at the visitor growth in
    Las Vegas and the nationwide popularity of its casino culture.

    He gave a cryptic answer to a reporter's question about whether this
    deal marked the culmination of his deal-making career.

    "Who knows?" the spry 87-year-old said.

    The future of Kerkorian's Las Vegas investment looks bright.

    MGM Mirage's proposed $4.7 billion CityCenter -- an urban complex of
    three hotels, a casino resort and high-rise residential towers -- is
    a sign that the company is trying to improve upon the typical casino
    model in a way that benefits the entire city, Schwartz said.

    "I think this (buyout) is more about real estate and (future
    development) and that's good because it shows there's a master plan,"
    he said. "This is not saying, 'Let's add 10 slot machines this
    quarter and see how it goes' and 'We're going to redo the buffet next
    year.' "
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