The International Hotel’s heavy reservation traffic, healthy casino business, and headline-grabbing series of shows provided a baptism in positive public relations. Its early financial returns were sensational. International Leisure stock steadily climbed. Kirk’s original 82 percent ownership, held by his Tracy Investment Company, had been worth a modest $16.6 million before the hotel opened. It jumped to $180 million on the strength of steady profits at both the International and the Flamingo.
It was time to take advantage of all the good press and potential investor enthusiasm by preparing for another public offering of International Leisure stock. The second offering figured to be wildly more successful than the first stock sale, which raised $26 million to finish construction. Beyond that, and beyond raising enough cash to pay off about $50 million in high interest loans, Kirk expected this public offering to raise his next fortune—something that could make the Trans International Airlines deal seem modest by comparison.
While his legal team applied to the Securities and Exchange Commission for authorization to offer a second issue of stock, Kirk went shopping for his next business challenge. The gambler needed a new thrill.
18
The Smiling Cobra
July 22, 1969
New York City
It was a Tuesday, after four in the afternoon. The markets had closed. Edgar M. Bronfman, chairman of the MGM board of directors, took a call from one of Hollywood’s biggest lawyers, Gregson Bautzer. They had residences a few blocks from each other on Park Avenue. The two men had been talking for months about Bautzer’s client Howard Hughes and the billionaire’s supposed interest in acquiring the film studio. It wasn’t a popular prospect. Hughes was regarded as the human wrecking ball that destroyed RKO Pictures, so Bronfman and the MGM board were polite, took Bautzer’s calls, and otherwise let his famously indecisive recluse of a client take his sweet time. They were busy trying to save an ailing icon of the movie industry.
That Tuesday afternoon, however, Bronfman and the board discovered that a year’s worth of Bautzer inquiries about MGM financials and assets and strategies had not been solicited on behalf of Hughes after all. Contrary to their assumptions, it turned out that since 1968 Bautzer had been quietly consulting with Kirk Kerkorian. And, more to the point of the Tuesday phone call, he now wanted to announce that Kirk would be launching a tender offer in the morning. His bid: $35 each for a million shares. His goal: management control.
Did Bronfman want to sell?1
The forty-year-old head of the Seagram Company in the United States was stunned by the news and outraged to be confronted with the uninvited takeover bid. He declared his opposition immediately. The offer was inadequate “and not in the best interest of shareholders.” Beyond that, Bronfman was taking the challenge personally. An associate told Forbes magazine: “He blows up whenever anyone mentions Kirk Kerkorian.”
Clearly, Kirk would have to fight for MGM.
MGM board vice chairman George L. Killion, a San Francisco Bay Area shipping executive, had been completely taken in by the Hughes ruse. He felt betrayed. “I had meeting after meeting with (Bautzer). He set up half a dozen dates with me to meet Howard Hughes. He even made reservations at the Desert Inn . . . but always they were canceled at the very last minute.” Killion heard from Bautzer that same Tuesday afternoon, letting him know that Hughes had “decided not to acquire control of MGM, but that Mr. Kerkorian of Las Vegas was going to do it tomorrow morning at 9:00 a.m.”
Unlike the Western Air Lines bid in which Kirk hoped to be a partner with management—until bitterly resisted by Drinkwater and his loyalists—this time he was declaring war on management from the start. Under Greg Bautzer’s guidance, Kirk was setting up to play the role of a big, bad corporate raider. And in taking on the Bronfman organization, he was challenging one of the giants of North American business. Bautzer had warned him, “Are you sure you know what you’re getting into?” But Kirk relished the fight, and he wasn’t going to waste any time playing Mr. Nice Guy.
Another difference that distinguished the MGM tender offer from Kirk’s previous Western bid was the price. Its eight-dollar premium over the prior day’s market price was based on a greatly reduced value. The studio was hemorrhaging cash and its share price was sliding. Officials had just reported a forty-week operating loss of $14.4 million. Kirk’s $35 a share offer—if accepted by Bronfman and Time, Inc.—would have cost MGM’s two biggest shareholders a combined loss of $30 million.
Once again Transamerica Corp. was standing behind Kirk, guaranteeing his $35 million tender offer. But that was a problem, too. Transamerica owned most of rival studio United Artists, posing a potential conflict of interest. Kirk sold his own shares of Transamerica stock in June. It went to pay off the $73 million Bank of America loan he’d used to buy Western Air Lines—a loan that wasn’t even due for nearly two years.
Transamerica’s possible role financing an MGM purchase gave Bronfman and the board a way to challenge Kirk in court. Days later, he agreed to find alternate financing. On the verge of being debt-free once he was free to issue stock in International Leisure, the Transamerica challenge seemed a minor nuisance.
Kirk immediately flew off to London where Europe’s top bankers were eager to make his acquaintance.
What Kirk saw in a tired old MGM with its run of box office losers was something beyond the view of most investors. He saw hidden value. With a market price wallowing around $25 a share, investors were missing hundreds of millions in existing value, not even considering any turnaround potential. Kirk and Bautzer figured the company’s actual value to be closer to $400 million, or about $69 a share. What they saw was MGM’s vast library of classic films—Gone With the Wind, Singin’ in the Rain, The Wizard of Oz. The company owned music publishers, a record company, overseas studios, and tens of millions of dollars in real estate.
And then there was the priceless cache of its legendary name. For many, MGM spelled class—as in old Hollywood glamour, gowns and tuxedos, klieg lights and red carpets. What was Leo the Lion worth? No one had ever imagined putting a price on the MGM logo. Not until Kirk Kerkorian.
Kirk’s alliance with Bautzer brought together two supremely competitive men with scrappy youths and bold careers. Bautzer was a kid from the tough waterfront town of San Pedro who became a noted Hollywood lawyer and playboy. He represented and romanced such stars as Ingrid Bergman, Ginger Rogers, Lana Turner, and Joan Crawford.
In the 1940s Bautzer was a friend, legal adviser, and frequent clubbing buddy of nightclub impresario Billy Wilkerson, founder of the Hollywood Reporter. Wilkerson also owned the famous Ciro’s on Sunset and the land under Bugsy Siegel’s rising Flamingo hotel and casino in Las Vegas. Bugsy and Billy were having a serious money dispute two weeks before the resort’s scheduled Christmas 1946 grand opening.
Bautzer came along as friend and lawyer to a contentious meeting at the construction site. The mobster, accompanied by two silent lawyers of his own, demanded that Billy surrender a share of his interest in the Flamingo to help pay off mob financiers that included underworld accountant Meyer Lansky. He didn’t say “please.”
“You’re gonna have to do it,” Siegel said.
“Just a minute,” Bautzer interrupted. His client didn’t “have to do” anything.2
“I’ve sold one hundred and fifty percent of this deal and I don’t have one hundred and fifty percent—only one hundred percent. Everybody’s gonna have to cut, including Wilkerson.”
Bautzer calmly waved him off. “You better figure another way out, ’cause he ain’t gonna cut.”
Siegel was on his feet in a rage. Unnamed people “in the East” needed to be satisfied or Bugsy was gonna be killed. Then, turning to Wilkerson, he said in a thoroughly convincing tone, “I’ll kill you if I don’t get that interest.”
“Sit down and shut up,” Bautzer barked at Siegel.
The lawyer ordered his client out of the room and then turned back to the mobster’s two lawyers, who
still had said not a word.
“You’d better shut this guy up ’cause I’m gonna make an affidavit . . . on the remarks Mr. Siegel has made at this meeting and who was present. I’m sending one copy to the attorney general. And I’m sending one copy to the FBI. And if Siegel is wise, or his associates are, they’d better make sure Mr. Wilkerson doesn’t accidentally fall down a flight of stairs. They’d better make sure he doesn’t sprain an ankle walking off a curb. . . . So, you’d better be goddamned sure Mr. Wilkerson enjoys a very long and happy life.”
At Bautzer’s urging, Wilkerson spent most of the next few months at the Hotel George V in Paris. He was there again on June 20, 1947, when news of Bugsy Siegel’s murder in Beverly Hills reached the banks of the river Seine.
Kirk loved telling people how his lawyer once told Bugsy to shut up and sit down. By the time Kirk signed on with Bautzer, his Beverly Hills law firm—known simply as Wyman Bautzer—had emerged as a political powerhouse as well. Two of the partners covered both sides of the local partisan divide. Eugene Wyman was chairman of the California Democratic Party, and former U.S. senator Thomas Kuchel had been the GOP minority whip before losing a primary election in the summer of 1968.
The firm was already becoming a magnet for some of the top young legal talent in Southern California, fresh recruits to join the growing ranks of Team Kerkorian.
MGM was in court on Friday, July 25, 1969, to block Kerkorian’s use of Transamerica funding to buy its stock shares. That same day Kirk flew to London, heading out over one of the North Atlantic air routes he helped pioneer as an RAF contract pilot nearly a quarter century earlier. This time, however, he relaxed in plush leather lounge chairs and a private bedroom cabin aboard his own personal jetliner. The four-million-dollar twin-engine DC-9 was custom fitted with long-range fuel tanks that took most of the adventure out of such a crossing. No boost from the “hurricane express” required.
Credit was tightening in the United States, but Eurodollars were available—at a price. Interest rates were in double figures and edging upward. In his pocket on the flight over, Kirk carried a copy of the Teletype message his friends at Bank of America had sent ahead to leading European banking houses on Kirk’s behalf. They recommended him for his strong reputation in the financial world. And the Bank of America said it considered Kerkorian good for $70 million on his signature alone.
Kirk checked into his suite at the London Hilton overlooking Hyde Park. It was a Saturday. His phone rang that same morning. Burston & Texas, a London banking firm owned in part by the Texas National Bank of Commerce in Houston, wanted a piece of the MGM action. First thing on Monday Kirk met with bank officials and settled on terms for a one-year, $12 million loan at 12.875 percent.
The old-line West German financial firm Bankhaus Burkhardt & Company was so eager to participate that it flew one of its partners to London, sparing Kirk the inconvenience of a trip to Essen. In their meeting, Burkhardt partner Otto Schoeppler agreed to loan up to $50 million. Kirk accepted a smaller initial deal of $20 million.
Kirk’s casino investments prompted questions in the European media about the staid old German bank’s new financial ties with a prominent Las Vegas gaming figure. Schoeppler dismissed any doubts about Kerkorian’s reputation: “We consider Mr. Kerkorian forthright and a man of good standing. The fact that he has an office in Las Vegas has no bearing on the nature of the man.”
In little over two business days, with bankers rushing to see him, Kirk lined up $70 million in European funding. He was back in New York on Wednesday where MGM lawyers thought they might have blocked the Kerkorian menace by blocking his Transamerica line of credit. Kirk didn’t break the news of his success just yet. He was busy getting ready for a flight the next day to Las Vegas for the International’s big Elvis Presley opening on Thursday night, July 31. His DC-9 was on the ground in New York only long enough to be refueled and filled with East Coast rock music writers and critics.
Kirk waited a few days before disclosing publicly that he had dropped the Transamerica loan. He didn’t need it. Instead, he would rely on a consortium of European banks to make the MGM buy.
But Kirk also was upping his ante. He announced that he would seek 1.74 million shares, about 30 percent of MGM stock and enough to guarantee working control of the company. Again, MGM lawyers went to court, arguing that Kirk lacked the collateral to support those loans. But a federal court refused to intervene.
At $35 a share, Kirk’s offer had attracted more than a million sales. But it was too low to spark the sales volume necessary to acquire 30 percent. Too many shareholders were waiting for something better. As the final numbers came in, it looked like a nail-biter of a close election: Kirk ended up with 1,263,950 shares, falling about a thousand shares short of matching the Bronfman-Time Inc. bloc at 1,265,000 and well short of the 30 percent range.
Kirk headed back to Europe to renegotiate his Burston & Texas loan. He had yet to draw any funds from that original $12 million package, but now he wanted to raise the limit to $22 million. With that additional funding secured, Kirk raised his ante again—now offering $42 a share for an additional 620,000 shares, a $17 premium from MGM’s summer low.
Results were unambiguous. Nearly a million and a half shares flooded in, but Kirk at first took only his declared 620,000-share limit. He ended September with 32 percent of MGM stock. Then, after market prices fell back in October, he bought more, inching toward a position at which no one could challenge his dominance.
For nearly a month, Kirk and Bronfman observed a truce of sorts. During that period Kirk met with members of the Bronfman team, who described Kirk as “a very gentlemanly, quiet man.”
But in late October Kirk moved to fire Bronfman’s handpicked president, Louis “Bo” Polk. Bronfman capitulated and quit the board. Kirk had offered the MGM presidency to mild-mannered United Artists executive and former literary agent Herb Jaffe. They played tennis together when Kirk was in Southern California. Kirk liked the United Artists business model. It operated more as a film distributor. It had no costly studio to operate and support. But Jaffe decided against taking on the demands of the salvage mission that clearly loomed for the ailing MGM.
At Bautzer’s urging Kirk named one of his lawyer’s clients to run the studio, the controversial former CBS president James T. Aubrey. Known as “the Smiling Cobra,” Aubrey seemed better suited to play the bad guy and manage a campaign of painful cutbacks to save the company from financial collapse.
And MGM was Kirk’s company to save. He now controlled nearly 40 percent of MGM stock—40 percent of Gone With the Wind, 40 percent of Leo the Lion, 40 percent of the boulders he and Norman Hungerford shoved around that sound stage one long night back in their teens for $2.60 each. Bautzer, for one, could see that MGM mattered more to Kirk than a typical investment.
“Kirk felt he’d bought himself a little immortality.”3
19
A Kick in the Ass
Late October 1969
Miami
It was the dream of at least two generations of federal agents to indict, convict, and finally imprison the little man with the biggest name in the American underworld, the infamous Meyer Lansky. They called him the mob’s accountant, the wizard of Mafia finance, the chairman of the board of organized crime. Journalists wrote how he laughed at the law.
So, when a team of Internal Revenue Service investigators hit the Doral Beach Spa in Miami Beach with a subpoena seeking Lansky’s testimony in a big gambling and tax evasion case, the intrusion was greeted more as an inconvenience than a concern by the old man trying to relax that fall afternoon in the steam room.
The unimposing Lansky certainly didn’t look the part of a dangerous gangster. He stood barely five feet tall in his prime—and he was long past those hale and hearty days. He was pushing seventy with a heavy smoking habit, stomach ulcers, and clogged arteries. About the only exercise he got was walking his small dog, a shih tzu fur ball named Bruiser. He and his wife, Teddy, lived modest
ly on what appeared to be his Social Security stipends. If he was worth $300 million, as some speculated, he was spending it on kibble and Maalox.
Still, investigators suspected that with records and testimony they could find Lansky’s hidden fortune. They wanted to know more about the bad old days at the Flamingo casino in Las Vegas, back before Kerkorian bought it—back when the skim took four to five million dollars a year off the top of casino profits and redistributed the wealth among Midwest and East Coast mobster investors. Lansky was among those investors, an early partner in the Flamingo with his friend Bugsy Siegel.
Everyone knew that in the decades since Bugsy was killed, the Flamingo casino kept right on skimming. It was part of the hidden value that Kirk recognized before he offered to buy the place in 1967. In his earliest discussions with Alex Shoofey about coming to work for him, Kirk had penciled out his expectation that simply ending the skim would produce an easy million-dollar profit for owners and stockholders. He underestimated. Kirk and Shoofey cleared nearly $3 million in profit that first year.
The IRS noticed—primarily because Fred Benninger dutifully reported the profit as profit. The Flamingo had never before reported a profit greater than $500,000—and sometimes it was half that. But when the IRS asked for two prior years of financials, from the years the casino was owned by Sam Cohen and Morris Lansburgh, Kirk couldn’t comply. He didn’t have them.
Cohen and Lansburgh were Miami hotel guys with financial ties to Lansky. They had ended up having trouble with their Nevada gaming license. They were under pressure to sell when Kerkorian stepped up with $12.5 million in cash. Kirk declined to hire their management personnel, bringing in thirty of Shoofey’s team from the Sahara. Cohen and Lansburgh declined to provide business records—not that Kirk didn’t try.
The Gambler Page 15