One big problem with that: Kirk always refused such compensation. He felt that as a major stockholder he should benefit only from his investment, that taking a fee for helping to manage his own investment was, well, inappropriate—and unfair to stockholders. He didn’t accept “comped” rooms or free meals at his hotels, either. He had always insisted on paying his own way with personal funds out of his Tracinda accounts.
But the suggestion that Kirk should give up compensation that he didn’t even receive gave one of his advisers an idea. Terry Christensen took Kirk aside and proposed that the MGM board authorize both onetime and continuing compensation, funds that would legally bind the corporation but that would not be paid. “But they can be surrendered,” the lawyer said, considering the notion a brilliant tactical ruse.5
“Absolutely not,” Kirk said. “I don’t want to be paid.”
“But you won’t get any of it,” Christensen explained. “It’s authorized, not paid.”
“I don’t like it. I don’t like how it looks.” Kirk was adamant.
“But it will help the company,” argued Christensen.
Kirk’s lawyer was confident that creating some sort of settlement bait could end the very real risk of a costly court battle with an uncertain outcome. Asserting that the stockholders would benefit finally made the difference. Kirk reluctantly agreed to the ploy.
“Just get it over with,” he insisted.
Months later, after shareholder lawyers formally demanded that Kirk give up his compensation, a settlement deal was reached. In December 1977, Kirk agreed to decline a board-approved $125,000-per-year “raise” retroactive to 1974, drop a $50,000-per-year salary, and forgo stock options until 1981.
On paper it appeared that Kirk was surrendering about $1.5 million in past and future compensation. It was all a mirage. Kirk still didn’t like it, but the ruse took MGM off the hook for any kind of corporate penalty. He went along for the good of MGM.
25
Punch, Counterpunch
November 21, 1980
New York City
Like a gunslinger with a reputation, Kirk Kerkorian, sixty-three, was known throughout the corporate business world by now as a dangerous man. It was a reputation reinforced by every success, by each high-profile investment, by appearing always to get what he wanted. He had a mystique about him since riding into public prominence seemingly out of nowhere. Suddenly he controlled a major airline and then deftly reshuffled entrenched management. He outplayed the legendary Howard Hughes to become the big man in Las Vegas. And in a Wall Street showdown, he easily dispatched the billionaire Bronfman family to take over MGM. Then he parlayed that great old movie company’s name into the symbol of a modern gaming resort giant.
Already a movie mogul worth more than $200 million, Kirk was now targeting a second movie studio. This time he wanted Manhattan-based MGM rival Columbia Picture Industries—makers of such classics as It Happened One Night and Mr. Smith Goes to Washington. Kirk’s interest coincided with the studio’s recent comeback from financial troubles and scandal. Its deposed and disgraced ex-president David Begelman was at the center of both circumstances.
Begelman had shepherded such big hits as Close Encounters of the Third Kind and Warren Beatty’s Shampoo. But he was also indicted on felony embezzlement charges for forging checks to cover gambling losses. An attorney from the Bautzer firm negotiated those charges down to misdemeanors and Begelman walked away with probation instead of a prison sentence.
The Columbia board of directors tried to keep Begelman and his indiscretions out of the press. He was suspended with pay, then reinstated, and, finally, fired. The Wall Street Journal broke the scandal open.1 But to Hollywood’s surprise, MGM plucked Begelman off the discard pile.
MGM president Frank Rosenfelt was looking for some box office magic when he proposed making Begelman his production chief. Greg Bautzer advised Kirk that it was a terrible idea for a publicly held corporation to hire a known thief and liar.2 It was only through the brilliant work by one of his lawyers, he argued, that Begelman wasn’t sitting in a prison cell at that very moment.
Kirk predictably deferred, telling his MGM exec, “If you feel that strongly about it, Frank, then I think we should go with Begelman.” Bautzer stormed out in protest. The disgraced architect of Columbia’s recent successes would remain part of Team Kerkorian for a couple of years—until he was fired on Kirk’s orders for the ultimate sin. He got too comfortable while at the same time failing to improve the company’s bottom line.
By late in 1980, Kirk’s steel-eyed focus was on Columbia, the studio he didn’t control. The wary objects of his interest wanted nothing to do with romance. The antitrust division of the U.S. Department of Justice warned against a marriage of the filmmakers. All of Hollywood was anxious to see what Kirk had in mind.
Would Kirk unleash another version of Jim Aubrey with pink slips and a budget machete? And what about gambling? Would the new studio also diversify into hotels and casinos? And about Columbia’s recently acquired pinball-manufacturing subsidiary, would it be transformed into a slot machine maker? Such fears hardened opposition inside Columbia, despite Kirk’s acknowledged golden touch as an investor.
Management insisted that it was doing just fine without Kirk, that the company wasn’t in the market for a partner—especially one owning about 50 percent of MGM—and that it would fight a Kerkorian takeover. Two years after Kirk’s initial investment in the studio, all pretense of politeness between them was gone.
On this clear, crisp autumn morning in Midtown Manhattan, Kirk and Columbia management were locked in a war of lawsuits and insults. With his legal team, he had flown in for a last confrontation with Columbia’s board of directors—one last round of threats and ultimatums before resorting to judges and juries.
To that end, the conference doors were closed. No phone calls. No visitors. No interruptions. Aides and secretaries standing by outside the meeting were ordered to observe one edict without exception: “Do . . . Not . . . Disturb.”
Out west, dawn was just breaking over the Pacific Coast. Somewhere beyond sight of shore Fred Benninger was beginning a daylong deep sea fishing excursion with MGM Grand executives Alvin Benedict and Bernard Rothkopf. They could not be disturbed, either. The three bosses were sharing a rare day away from Las Vegas, far from hotel and business responsibilities, and well beyond the reach of telephones.3
At the MGM Grand Hotel it was a typically slow early Friday morning. There were a few stubborn gamblers left over in the casino from the night before. The first room service breakfast carts were heading for the elevators. And so far the checkout lines were short at the registration desk. Jac and Blanche Keller had packed and left their bags near the door, ready for a quick departure to the airport. The couple was flying home to Indianapolis. They had just enough time for a quick breakfast in the coffee shop.
Shortly after 7 a.m., assistant chef Kenny Oborn spotted a small fire in the not-yet-open MGM Grand Deli. He quickly alerted the hotel switchboard on a house phone, and then he went back to find the flames had grown.
Back in New York, an urgent call for Kirk came in sometime after 10:30 a.m. Eastern time. It was jotted down on a message slip. More followed, the callers increasingly agitated and insistent on reaching Kerkorian. He was needed immediately. More voices relayed more ominous messages: “. . . an emergency! . . . a fire! . . . on television! . . . call ASAP!” The paper slips piled up.
Jac and Blanche were already dead. Dozens more were dying.
The conference room door remained closed. Kirk remained unaware. And the contentious meeting continued uninterrupted.
The business dispute that so occupied Kirk that November morning started two years earlier in the summer of 1978 with a secret Kerkorian shopping spree in the New York stock market. Tracinda Investment was buying up shares of Columbia Pictures. Anyone paying attention to volume and price fluctuations in July might have noticed both figures hitting fifty-two-month records.
&
nbsp; Shortly before Thanksgiving, Kirk stepped out of the shadows to disclose that he had been behind that market activity and that his Tracinda Investment had acquired nearly a half-million shares of the moviemaker’s stock—about 5.5 percent. At the same time, he declared his intention to seek an additional 20 percent in a January tender offer. It amounted to a $42 million bid for 25.5 percent of an MGM rival company.
Kirk also moved quickly to reassure everyone at Columbia. He was an investor, he said—not a raider. But the board of directors wanted something more tangible. They wanted a contract—and, no, not simply a handshake. In what seemed a cordial negotiation, Kirk agreed and pledged in writing not to buy any more shares of Columbia Pictures beyond the planned 25.5 percent total for at least three years. He also agreed to resign as a director and vice chairman of MGM. Everyone seemed happy—except for the Department of Justice.
The fact undermining any antitrust case against some sort of MGM-Columbia alliance—real or potential—was MGM’s rather anemic slate of films. Lawyers for Kirk called MGM primarily “a hotel company,” arguing in court papers that it was “a competitively insignificant producer” of four to six films per year. They acknowledged that retrenchment had been so severe that MGM could “no longer be considered a major factor in the industry.”
A request for the court to block Kirk from buying more Columbia Pictures stock was rejected. But once he had purchased 25 percent of the company, the federal antitrust lawyers returned, slapping Kirk with a lawsuit that demanded he divest immediately. It was a galling reminder to Kirk of his earlier days sparring with regulators at the SEC. He had few options then. Now he had time and money on his side. He decided to fight.
A weeklong trial that summer in Los Angeles opened with U.S. District Court Judge A. Andrew Hauk very nearly tossing out the case on day one—before federal prosecutors could even make their opening remarks. But the case went forward. It featured ninety minutes of testimony from Kirk himself. Judge Hauk later called him the best witness in the trial, “sound . . . soft-spoken . . . restrained . . . not given to wild exaggeration.”
Columbia director and member of the board Herbert Allen, an East Coast investment banker who opposed a Kerkorian takeover, testified to Kirk’s integrity and to trusting Kerkorian when he said his stock purchase was for investment only.
For federal antitrust prosecutors, the case was a debacle. Kirk was still bound by his earlier agreement to hold his ownership stake at 25 percent, but he was more certain than ever in the wisdom of his Columbia investment. And there were alternate ways to boost the value of his holdings without buying more stock.
He began pressing Columbia management to use cash reserves to buy back stock. Not only would the tactic increase stock values generally but in reducing the total number of shares outstanding it would have the notable side effect of increasing the percentage that Kirk owned as well.
Meanwhile, he also found potential outside buyers for his share, including Kirk’s friend Jerry Perenchio, a television producer-partner with Norman Lear. His Tandem Productions offered $163 million for Kirk’s 25 percent share. Columbia’s board wouldn’t approve, however, and management was starting to complain about what it considered backdoor takeover threats.
In May 1980 the rift between Kirk and Columbia blew up in the business section of the Los Angeles Times.4 Columbia president Francis T. Vincent Jr. had said something critical of Kerkorian in front of a group of entertainment security analysts and, taking umbrage, the famously private Kirk had actually gone to the press. He let his lawyers do the insulting, but the animosity now was playing out in public.
Vincent accused Kirk of using the press to further his own interests and of selfishly taking up the time of Colombia management in pursuit of his own personal “interests and ambitions, not . . . Columbia’s nor its shareholders.”
Kirk’s lawyers fired back at Vincent for protecting the status quo: “‘Preserve management and keep Kerkorian away’ has been a fundamental philosophy of you and your colleagues.”
And so it went—punch, counterpunch.
More than ever Kirk considered Columbia a good fit with MGM. A merger offered the best shortcut available to restoring some of MGM’s lost filmmaking luster, plus an instant replacement for its lost distribution operations. He still had more than a year to wait before his obligation to stand pat on 25 percent ownership was scheduled to expire. But with the end of decorum between Kirk and Vincent came new and serious threats to end that agreement prematurely.
Finally, Kirk announced in late September that he was going after controlling interest in Columbia . . . now. Regarding the still valid agreement, Kirk said: “Events have transpired which warrant termination.” Those unspecified “events” amounted to what Kirk saw as broken promises by the company.
That summer, MGM had split into two separate companies, spinning off its resort and casino business under the banner of MGM Grand Hotels, Inc. The movie business took on the corporate name Metro-Goldwyn-Mayer Film Co. Kirk retained 47 percent ownership of each. The film company was launching the Columbia takeover bid.
Vincent told the Wall Street Journal that Kirk “sounds like a guy trying to commit an invasion who has just torn up the peace treaty.” He compared the surprise announcement to a surprise attack: “an early morning bombing and strafing raid.”5
Kirk landed the first legal blow, a breach of contract suit. It contained dark allegations of insider dealing and “a shadow government” of investment banker Herb Allen and old-time Hollywood producer Ray Stark that secretly ran the company. Stark’s long affiliation with Columbia Pictures included such major hits as Funny Girl and The Way We Were.
Two days after Kirk’s suit was filed, Columbia sued Kerkorian. Its suit contained dark allegations of conspiracies, hostile intentions, and “a fraudulent scheme to gain control” of the company.
Both sides found federal judges willing to order their opposing sides to suspend scheduled stockholders’ meetings. Both sides responded with outraged public statements.
Punch. Counterpunch.
They were like two fighters trading body blows up against the ropes—with not much to show for all the legal pummeling so far but a lot of bruises. Reputations of integrity took the greatest beatings all around. The prickly Ray Stark fired off a “Dear Kirk” letter that he then shared with the Los Angeles Times—a low blow, but it was that kind of a fight.6
“Obviously I was naïve in liking you, trusting you and believing what you and your associates advised me you stood for,” Stark said in his six-page harrumph against the one corner of Kerkorian’s reputation that Kirk himself most guarded: personal trust. It was no trivial insult. It wasn’t intended to be.
It was in the immediate aftermath of such disrespect and personal invective that Kirk and the Columbia Pictures leadership convened in the company’s Manhattan boardroom on Friday morning, November 21, 1980.
A late-morning break finally gave the embattled negotiators a chance to step away from the table and retrieve messages. Kirk had a fistful of little slips with scrawled notes. As he stood absorbing their contents, his low baritone sounded more like a soft moan: “Oh, my God.”
26
MGM Spells Disaster
November 21, 1980
Las Vegas, Nevada
Jason Rohde, the overnight busboy at the MGM Grand Hotel’s coffee shop, noticed an odd odor—a hot smell, maybe something electrical or, more likely, the scorched bottom of a coffeepot. He checked the wait stations and found no suspicious sources. It was the second time in the same shift that he’d circled the Orleans Coffee House on a sniffing and detecting mission. Nothing. No one else seemed to notice. He tried to shrug it off.1
At 7 a.m. Jason punched out promptly. He didn’t want to be late for school. But halfway to employee parking, he realized that he’d left his hairbrush back at one of the wait stations. He rushed back to retrieve it. The brush was there. So was that “hot” smell. He didn’t have time for another futile search. He
had to get ready for school.
It wasn’t much of a breakfast rush yet, but waitress Velma Turner realized the coffee shop was short of the folding stands she and her colleagues needed for tableside serving. The Deli next door would have some. It would be closed until 8 a.m. Velma went through the kitchen shared by both restaurants. In the empty and darkened Deli the main light source was a three-by-four-foot Keno monitor mounted on a wall. At 7:05 a.m. no one was playing.
But something over by the Keno monitor caught Velma’s eye. She turned to face it and a spray of blue sparks spewed out from the electrical connection behind it. She waited to see if that was the end of it. But blue sparks burst out again, this time chased by a puff of black smoke.
She hurried back to the kitchen where assistant chef Kenny Oborn had bacon on the broiler. He immediately retraced her steps and encountered red-orange flames now bursting through the wall. He rushed out to find a phone and inform the hotel switchboard: “There’s a bad fire in the Deli.”
Out by the coffee shop entrance, three vacationing firemen from Illinois waited to be seated. As they followed their hostess another seated patron interrupted the group to ask, “Do you have the time?”
“It’s 7:15,” replied the hostess.
“Yeah,” added the wisecracking Dave Beshoar, one of the out-of-towners, already familiar with how days and nights can get confusing in a windowless casino. “That’s A-M, by the way.”
Tim Connor, a tile maintenance man, was entering the closed Deli from its front door, opposite the kitchen side where the assistant chef just exited to report the fire. They didn’t see each other. Connor heard the menace before he saw it: “A crackling sound, like a roaring fire going like a big bonfire or something.” Then he saw the shadows of flames, “flickering, as a candle flickers.” Finally, he was deep enough into the crescent-shaped floor space to see “a wall of flames” from countertop to ceiling.
The Gambler Page 20