Thread by @NeckarValue

In 1990, billionaire Kirk Kerkorian asked his advisors to join him at his home in Beverly Hills: “I’m going to buy 10% of Chrysler.”

He had met Chrysler’s CEO Lee Iacocca the previous year at a horse race. Now he wanted to acquire a stake without tipping off the market.

Bear Stearns banker Michael Tennenbaum was skeptical: “I never met a CEO without a 10% holder who wanted a 10% holder. Never.”

K: “I’m going to protect him. The company is vulnerable to takeover.”

Should they contact Iacocca first?
K: “Nope, I want you to buy the stock.”

Chrysler was cyclical, indebted, the economy was weak. Kerkorian’s advisors didn’t like the idea.

Tennenbaum: “I’ll be happy to spend some time studying Chrysler and let you know what I think.”

Kerkorian: “I’d rather you wouldn’t.”

Tennenbaum insisted: “Kirk, we will put the entire Bear, Stearns organization at your disposal. We will do a very in-depth analysis.”

“Michael, if you and Bear develop an opinion on Chrysler, please keep it. I’m placing an order. Do you want it or not?”

Of course, they did.

“Kirk may be going crazy,” Tennenbaum told Bear’s Ace Greenberg.

To which Greenberg replied: “Don’t ever tell Babe Ruth how to hold his bat.”

Kerkorian bought 9.8% of Chrysler’s shares and over several years pushed for a higher dividend and buybacks.

When management resisted, Kerkorian partnered with the then-retired Iacocca to threaten a takeover. That did the trick.

“Chrysler raised its dividend ... Mr. Kerkorian, Chrysler's second-largest stockholder, has been badgering the auto maker for more than a year…initiated an unsuccessful takeover bid in April. Chrysler announced a $1 billion stock buyback…”

nytimes.com/1995/12/08/bus…

In 1998, Daimler bought Chrysler and, per his biography, Kerkorian walked away with some $2.7 billion in gains and dividends.

Tennenbaum: “All the smart guys, including me, said ‘Don’t get involved in a cyclical company.’ But Kirk picked the right horse, and he stuck with it.”

Kerkorian had picked a good time to ride a cyclical company in a benign economy.

fred.stlouisfed.org/series/TOTALSA

He was right to ignore the skeptics. But what happens if you start thinking of yourself as the “Babe Ruth” of deals?

@nongaap noted some people don’t retire from the game. I think that’s because their identities get wrapped up in the game above all else.

https://twitter.com/NonGaap/status/1412560638233104384

Kerkorian was a self-made billionaire without a high school degree. He had founded and taken over airlines. Built and traded hotels, casinos, the MGM studio. By 2007, his fortune was estimated at $18bn. Easy to think that he had the golden touch.
latimes.com/business/hiltz…

In 2005, he acquired a 10% stake in GM. He recommended they sell their Hummer and Saab divisions and partner with a foreign automaker.

Management was not interested. Kerkorian sold in late 2006 with an estimated $250mm profit. GM filed for bankruptcy in 2009.

When Daimler sold Chrysler in 2007, Kerkorian made a bid. Lucky for him, he lost to Cerberus. Chrysler also went bankrupt in 2009.

reuters.com/article/us-chr…

In the summer of 2008, he acquired 6.5% of Ford for nearly a billion dollars, at $6-7 a share. At this point, the financial crisis was well underway.

He dumped his stake at the end of ’08, somewhere around $2 a share.
sec.gov/Archives/edgar…

Betting on automakers and City Center, one of Las Vegas’s biggest projects, one could speculate he was trying to relive his glory days.

If being a ‘dealmaker and developer’ was key to his identity, how could he possibly retire from the game.
wsj.com/articles/SB123…

Self-verification theory poses that we seek interactions with people who confirm our self-perception and tend to disengage with people who don’t. We risk losing the dissenting voices.

But we need them when conditions change and when our winning formulas need adjusting.

Be careful not to over-identify with a specific strategy, pattern, or victory of yours. You might overstay your welcome.

Someone knock me over the head for not following my threads with a link to my substack *where I write profiles and stories such as this one*😣

neckar.substack.com