The banker reached Drinkwater by phone at his office in Westchester just before the executive headed out for the weekend. “Terry, Kirk Kerkorian wants to see you this weekend,” said Clausen. “Do you know him?”1
Drinkwater was familiar with Trans International. He knew Kerkorian by name, but they had never met. “I don’t know him personally,” he said.
“Well, I’ve raised Kirk from a pup,” Clausen went on. “He’s a nice guy. He wants to see you about something important.”
But Drinkwater had plans for the weekend. “I’ll see him Monday,” he said.
“He wants to see you right away.”
“What about?”
“I can’t tell you.”
“Then it’ll have to wait until Monday.”
With that, Drinkwater blew off a friendly introduction to the man most widely known at that time as a Las Vegas financier. Three months earlier Kirk had sold his interest in the land beneath Caesars Palace for $5 million—bringing to about $9 million his total five-year return on that former sandlot. He held a million-dollar second mortgage on the newly opened Circus Circus resort built by Caesars Palace impresario Jay Sarno. And just a few weeks earlier he had acquired the bankrupt Bonanza Hotel and Casino. Kirk already owned the Flamingo and was building the world’s biggest hotel just off the Strip. But Drinkwater wasn’t interested in Las Vegas except for the paid passenger volume the town generated for Western Air Lines. And he couldn’t be bothered with a Vegas financier on that weekend in December 1968.
Kirk was dealing with a number of uncertainties at the time. The massive International Hotel was already under construction, but financing to complete it was not yet in hand. To make that happen, he was counting on a public offering of stock in his new International Leisure Corporation, even though the national economy was cooling and market prices were sagging. The Bonanza needed costly renovation or demolition. And Circus Circus was a month-to-month risk to default.
Yet Kirk picked this unsettled time to surprise friends and the financial world with a hefty side bet on assets beyond Las Vegas. He had arranged a $73 million loan from Bank of America to fund his bid for controlling interest in Drinkwater’s Western Air Lines. He had wanted to talk to Drinkwater about it first, as a courtesy, before the executive read about it in the news. Kirk also hoped to allay any fears about his investment motives. He had no immediate plans to change management.
The Western Air bid had plenty of logic going for it and at least a dash of sentiment. The company dominated short-haul routes throughout the West and was, in Kirk’s words, “a darn good routed airline.” It was about to open nonstop service out of the Midwest to Las Vegas and was expecting to win lucrative routes to Hawaii soon.
On a more personal note, for the first time since Kirk’s postwar investment in the air charter business, he found himself at the end of a calendar year without an airline of his own. It turned out not to be as easy as he thought it would be to sever ties—and his personal identity—with Trans International and the wider world of aviation. At heart, he was still an airline guy. And it all started with Kirk’s first flight nearly thirty years before out of Western Air Express Airport in Alhambra, the original Southern California home of the airline he now hoped to control.
He had talked it over with Fred Benninger, his right-hand man on the Vegas hotel projects. Fred had also been a pilot during World War II and a longtime executive at Flying Tiger Airlines where he started as an accountant. He wasn’t a visionary so much as Kirk’s guardian of the bottom line, but Kirk consulted Fred on most business matters.
What did Fred think about the future of leisure travel? Benninger hadn’t given it much thought. He was trying to get the International Hotel built. Kirk envisioned leisure travel on the verge of booming growth. He saw a surge in leisure spending benefiting Las Vegas tourism and a well-run airline right along with it.
Kirk had another question. What did Fred think of Los Angeles–based Western Air Lines as an investment target? Benninger shrugged. “From what I know, it’s a good little airline with potential,” he said, just as it dawned on him what the boss was thinking.
“But Kirk—if I were you,” he quickly added, “I wouldn’t buy any airline at this time.”
Inflation was starting to sap the economy. Some newspaper commentators were even speculating about future currency revaluations. The naturally conservative Benninger was growing more bearish as well. He also had his hands full overseeing the Flamingo and building the International. Not only was construction financing still a work in progress, so was delivery of plans to the hard hat crews. As fast as plans came off the drawing boards for installing pilings or erecting steel or whatever, that’s when work installing pilings or erecting steel or whatever began. But it was also too late—too late for trying to talk Kirk out of another gamble.
A tender offer for Western stocks, enough to make Kirk the company’s single largest shareholder, was announced on Monday morning, December 9, with half-page advertisements in the Los Angeles Times and other major papers around the country. Unlike Howard Hughes who seven months earlier toyed with bringing Kirk into his secret talks with Drinkwater, Kirk was going in alone—and directly to the stockholders.
Drinkwater didn’t see it coming. He hadn’t even read his Los Angeles Times yet that morning. In traffic, inching toward Western’s corporate offices at the edge of LAX, the executive was catching up on the latest news—and traffic reports—listening to his favorite all-news radio station. In local business news, said the voice on his car radio: Western Air Lines may be the takeover target of Las Vegas financier Kirk Kerkorian. The casino owner was seeking 1.5 million shares at $45 each, a $10 per share premium over Western’s recent trading range.
In an age before cell phones, Drinkwater had to contain his rage until reaching Western Air headquarters on Century Boulevard, closing the door to his private office and grabbing the phone to dial his friend, the vice chairman at Bank of America. “You sonuvabitch!” he greeted Alden Clausen.
Drinkwater was a big man with a big personality, prone to loud tirades whenever his patience was tested and not one to worry much about business niceties. He once saved his company from a $150,000 aviation debt by wagering a double-or-nothing coin flip with a Douglas Aircraft Company executive. In his twenty-year tenure running Western, Drinkwater had dragged his ailing company back from the grave, put it on sound financial footing, and made it a model of aggressive marketing and management. Western was his airline. It wasn’t for sale. And he was feeling betrayed.
He was also shouting into the phone: “Every bank in California’s been after our business . . . I told them we’d stay loyal to [Bank of America]. Now you guys come along and try to cut our throats.”
The bank’s $73 million loan to Kerkorian had not been disclosed in the published tender offer or in the news radio report. But Drinkwater knew the score and the math of 1.5 million shares at $45. He knew that Clausen and Bank of America were standing behind Kerkorian’s bid, and that’s what elevated his decibels and his blood pressure.
“I’ll bet you loaned him God knows how much to make a corporate raid,” Drinkwater seethed.
“It’s not a raid, Terry!” the banker interrupted. “Kerkorian is acquiring the stock as a good investment.”
“Bullshit,” roared Drinkwater, and he slammed down the phone.
That same Monday afternoon Kirk flew into Los Angeles International Airport from Las Vegas aboard his private DC-9 jet. Western’s corporate offices were a ten-minute cab ride from the private plane terminal on Imperial Boulevard. Drinkwater was waiting for Kirk wearing an angry scowl and his customary bow tie.
Introductions were strictly perfunctory. Kirk either didn’t notice or ignored the icy reception. He obviously considered the meeting a formal occasion. He was wearing a tie instead of his customary turtleneck and sport coat.
“I’m sorry I couldn’t get in touch with you prior to the offer,” Kirk began in a confident but friendly tone. Dr
inkwater’s personal assistant was struck by Kirk’s commanding presence in the room—his cold electricity—despite the fact that Drinkwater towered over him as they shook hands.
“I’m sure you want to know who I am, what I’m like, and what my interests were in making this investment,” Kirk continued. “We have many friends in common. You can check me out through them—”
“You dirty sonuvabitch!” Drinkwater cut him off.
The fact is that they did have many friends in common. Some of them were Drinkwater associates and members of Western Air’s board of directors. Most had only good things to say about Kirk.
One of those was Arthur G. Woodley, former head of Pacific Northern Airlines until it merged with Western and he joined the board with Drinkwater’s team. Woodley once bought a used DC-4 from Kirk only to have his maintenance people complain it was leaking fuel so badly that it was a safety hazard simply parked on a tarmac.
“Art, so help me, I didn’t know it was in that kind of shape,” Kirk apologized. He returned the entire purchase price without debate. And Woodley considered Kirk one of the most honest businessmen he’d ever known.
But that afternoon in Drinkwater’s office, the airline boss saw Kerkorian in only the starkest of terms—as an interloper and a pirate trying to loot his domain. He barely took a breath for the next fifteen minutes as he spewed invective and condemnation in rapid fire.
Kirk was surprised by the tirade, though he wasn’t angry. Not yet. But like Las Vegas, it was becoming clear that Western Air Lines wasn’t going to be big enough for two tigers.
There was one important factor underlying Kirk’s confidence in opening a second investment front in the risky aviation business. Back in Las Vegas, day-to-day operations were under control. He had absolute trust in a team temporarily headquartered at the Flamingo to manage things on the ground, at the construction site, behind the front desks, and on the casino floors. His key hires were Benninger and Alex Shoofey. They weren’t exactly a close-knit team. They could barely tolerate each other.
Benninger was a German by birth and frugal by nature. He earned his nickname “the Prussian” from his hard-nosed negotiations with contractors and suppliers and from an unrelenting aversion to spending money. The former accountant never spent a dime he didn’t first try to save. Fred was the gatekeeper protecting Kirk’s millions and he embraced that role with fierce loyalty—playing the tough guy to Kirk’s soft-spoken nice guy.
The front office at Circus Circus already had its fill of Benninger barely three months after it opened in the fall of 1968. The new resort was wrestling cash flow and start-up troubles but one thing it could count on—a monthly call from Benninger wanting assurances that Circus Circus would make its next interest payment on Kirk’s million-dollar loan. “I just want to go over there and hit the guy,” one of the partners confessed.2
Benninger was Kirk’s top financial adviser, but Kirk wanted Shoofey to pilot the Flamingo. His mission was to make it profitable and at the same time build up a staff that could transfer directly to the International Hotel the day it opened. In order to lure him away from Del Webb’s Sahara where he had been the best-paid and most-sought-after resort operator in town, Kirk offered Shoofey more than a title and generous share of the profits.
“Alex, I want you to run the (Flamingo). Promote it. Whatever expense you need—I don’t care if it’s five dollars or five million dollars—if it’s for the benefit of the hotel, go ahead and do it.”3
A day after taking over the Flamingo, Shoofey was driving to his first meeting as president of the hotel. He stopped for a morning car wash and fill-up. With an appropriate Vegas-sized tip, the tab amounted to twenty dollars. He put it on his expense account. Benninger summoned him to his office. His reimbursement claim was rejected as inappropriate.
“It’s not right,” said a very serious Benninger from behind his horn-rimmed glasses. “If you can do it, then anyone else could.”
Shoofey, the president of hotel and casino operations generating millions in revenue and expenses every week and accustomed to handing out twenties like they were nickels and dimes, was silent, dumbfounded, in total disbelief—for about five nanoseconds—before unleashing a string of epithets.4
“I can’t take this shit,” he barked and reached for Benninger’s desk phone to dial the boss. Kirk answered and Shoofey exploded, “This sonuvabitch is questioning me . . . he’s annoying me!”
Kirk hurried over to calm the tempest. He told Benninger, “Listen, my deal with Alex is this . . .” and he repeated Shoofey’s carte blanche authority to spend “five dollars or five million” to promote the hotel.
The rejected expense account was promptly reinstated. Shoofey got his twenty bucks back. Far more importantly, the point had been made. Kirk had cleared the air and freed Shoofey of what he considered bean counter constraints. But the two executives would never reconcile.
On another morning weeks later, Benninger summoned Shoofey again—this time to confront him with a report that the casino had been ripped off the night before. Based on the tip of a watchful friend, Benninger said the casino probably lost forty thousand dollars at a certain craps table. Shoofey immediately ordered the drop box from the suspect table. But its contents matched receipts. Its weight was normal. If anything, it appeared to have been an exceptionally good night at this particular table.
Benninger conceded his friend must have gotten it wrong. Shoofey was in no mood for apologies. He warned the finance chief to stay out of the casino and out of his hotel operations or someday, “I’m going to knock your head off.”
In Las Vegas, the chronically unfriendly partnership between Benninger and Shoofey served Kirk’s purposes just fine. Both were honest, competent, and loyal to him. And that left Kirk free amid all the turmoil to turn his attention to the increasingly bitter fight over Terry Drinkwater’s airline.
Kirk had tried to reassure Drinkwater and his team that he had no intention of making major management changes, that all he wanted was two places on the Western board of directors. It was a modest request reflecting his 28 percent ownership. But Drinkwater was adamant. He didn’t want Kirk or any of his people on the board. This, despite the counsel of his closest friend and the president of operations, Stanley R. Shatto, who said of Kirk, “I don’t know anything bad about him, Terry. He seems to be an honest, capable guy, and people who’ve had dealings with him say he’s straightforward.”
Even Shatto drew the line, however, when Kirk said he wanted to put Benninger on the Western board. Shatto regarded the Prussian as “that damned hatchet man.”
Stubborn resistance to his request for board positions prompted Kirk to increase his investments by $6.1 million—boosting his holdings to about 31 percent. Drinkwater finally agreed to a compromise, opening one board position. Kirk rejected the gesture. Drinkwater and his board then agreed to expand from fifteen to eighteen members, making room for Kerkorian, Benninger, and Kirk’s lawyer William Singleton.
It was as if Drinkwater was determined to keep peppering Kirk with jab after jab to wear down and discourage the new majority stockholder. Instead, it made him angry. And when Rifle Right Kerkorian finally had enough, he fired back.
In a demonstration of power and impatience, Kirk demanded five seats on the board and a title enabling him to challenge Drinkwater directly. He wanted to be chairman of the board. Now the feud was personal on both sides.
16
Hello, World!
Valentine’s Day, 1969
Las Vegas, Nevada
From his ninth-floor penthouse at the Desert Inn, Howard Hughes could watch Kirk Kerkorian’s dream come true, keeping an eye on every phase of progress as his rival’s International Hotel rose from the sand off Paradise Road. Week after week it took on the shape of the world’s biggest hotel and casino with more steel, more floors, and a more prominent profile in the desert sky. Instead, Hughes shut out the view. Day and night he kept his curtains drawn.
What no one could see w
as the drama behind the scenes. A worksite crawling with tradesmen and bulldozers disguised the fact that although Kirk had financing to get the International Hotel started, his limited loan package would be exhausted at roughly the halfway point of construction.
Kirk’s plan was to issue stock in a new Nevada corporation called International Leisure, a holding company for both the Flamingo and the rising International Hotel. The Securities and Exchange Commission (SEC) had authorized the public offering, a tribute to Kirk’s solid reputation and the success of his earlier Trans International Airline public offering. And when the markets opened on a Valentine’s Day Friday, International Leisure Corp. was on the trading block.
For would-be investors—or those with their curtains closed—a company prospectus described the International’s state of completion: “At the present time the outer framework for 22 of the hotel’s eventual 30 stories has been completed in accordance with the company’s time schedule. If construction continues on schedule, management expects completion of the hotel and its opening to the public in the summer of 1969.”
Investors were offered a mix of stocks and bonds in units—each of the twenty-five thousand units on the market included twenty shares of stock valued at $5 each and a $1,000 bond offered at 8 percent interest for a total purchase price of $1,100 per unit. Even in the face of a deteriorating national economy, the offering was an immediate success. International Leisure raised $26.5 million. Completion was assured.
Kirk was especially encouraged by how smoothly the stock sale had gone. He planned to repeat the exercise later in the year, once the hotel was open and showing its anticipated profit. He was confident, too, that a second public offering would raise substantially more cash. And that confidence was reinforced almost instantly.
The Gambler Page 13