SBHD: As Kirk Kerkorian puts in a £23bn takeover bid for Chrysler, George Pitcher asks why Britain is so barren when it comes to nurturing great self-made tycoons.
It’s tempting to say that it could only happen in America. One of the world’s largest motor car companies is the subject of a takeover bid by a single individual. At least Napoleon landed from Elbe with 100 men. This is like a lone prince declaring war on an entire country – Rainier invades France.
The sheer gall, though, of Kirk Kerkorian’s $23bn bid for Chrysler, albeit through the company, Tracinda Corporation, that he named as a composite of his children’s names, does draw attention to how differently business is done in the US from the rather plodding commercial methodologies of the UK.
The first point to make is that, rightly or wrongly, Kerkorian is only able to make this bid because he is, obviously, massively rich. His personal fortune is estimated to amount to some $2.5bn. That helps when you’re trotting off to the banks with a proposition that will involve debts worth about $12bn.
This point matters only in so far as the difference in our national attitudes to personal wealth has lately been in even starker contrast than usual. True, the issue that we rather meaninglessly call “executive pay” has arisen out of the remuneration of those who head privatised utilities, rather than that of self-made tycoons, but it has to be said that British derision is also directed at those who have built and/or run successful private sector enterprises.
Ask Lords Hanson and White. For every admirer, you will find at least one Brit who will trot out the line that they have not been so much runners of business as dealers of companies. In the US, few such distinctions are made.
Ask Sir James Goldsmith. Not so much a businessman, his detractors will have it, more a way of life. That is, his success is supposedly built on some eccentric and ill-defined political ability than on commercial acumen.
Strangely, greater respect tends to be accorded to someone like George Soros than to the moguls who have inhabited these shores. And Soros’ considerable talent is confined to making billions, not from industry but from being shrewd enough to bet that the British Chancellor could be a big enough berk to withdraw suddenly from the ERM.
Our national attitude does little to encourage the latent managerial talents that can turn aspiring British tycoons into the likes of Kerkorian. It is worth pausing to remind ourselves of the Kerkorian story, if only to ask if there is any real likelihood of an equivalent tale emerging from our own ranks.
Kerkor (“Kirk”) Kerkorian is the son of an immigrant Armenian fruit farmer who boxed before serving with our Royal Air Force during the last war. He built a transatlantic charter airline, which he sold well in 1969, before embarking on a Hollywood spree by acquiring a controlling interest in film studio MGM.
In 1970, heavy debts and profits setbacks at MGM, and at Western Airlines, where he was controlling shareholder, forced him into a major rationalisation, including the sale of casinos and assets such as his private jet (remember some of those instant British tycoons of the Eighties, for whom the helicopter or the limo proved indispensable, even as their enterprises collapsed beneath them?).
There followed a consolidation of effort in Las Vegas casinos and hotel complexes and some labyrinthine dealing in Hollywood that made enemies of some of the most powerful studio bosses of the era. And now, approaching the age of 80, Kerkorian is moving in on Detroit’s third largest motor manufacturer.
Chrysler offers a similar tale of dogged entrepreneurial determination in the shape of the extraordinary Lee Iacocca, Kerkorian’s comrade-in-arms in the bid for the company. The son of an Italian Ã©igrÃ© he grew up in abject Depression poverty, before fighting his way up Ford’s management ladder.
Ford fired him in 1978 and he moved to Chrysler, where he was made chairman at the age of 53 in 1979. Later the same year, he consolidated all Chrysler advertising within one agency and fronted a new television campaign himself, appealing shamelessly to US patriotism.
Perhaps Iacocca’s greatest achievement was to persuade the US government to underwrite $1.2bn of loan guarantees, which subsidised a raft of new product launches. A decade ago, Chrysler had been turned around from a $1.7bn loss to a $2.4bn profit and had repaid its government loans seven years ahead of schedule.
When the going got tough and Chrysler’s profits took a dive in 1990 (while Iacocca’s salary was increased by 15 per cent to $4.58m – something the Employment Select Committee here might like to chew on while it bickers over executive salaries of a few hundred thousand) Iacocca pulled the company through, before stepping down in 1992.
These are, of course, romantic American stories – and they would amount to little more than that if we were to fail to establish whether their businesses have prospered as well as these individuals have.
Bringing Chrysler back from the edge of the abyss has established a model for recovery management. Fiat, for example, with which Chrysler flirted over a merger in 1989, has adopted a mirror-image strategy for its own recovery plan. There is actually no rocket science involved in this strategy – it simply involves disposal of non-core interests (everyone from Guinness to Hanson knows that one), tight cost control, improved production techniques and, most importantly, innovative new product development.
It is not so much the essence of these very sensible practices as their combination that proves so potent. And, of course, the bottle to push them through.
It is this sort of bottle that made Chrysler an attractive bid prospect and more precisely the likes of Kerkorian and Iacocca launch the second largest takeover bid in American – or, indeed, global – corporate history, ranking just behind the $25bn leveraged buyout of RJR Nabisco that came to epitomise the merger mania of the Eighties.
British commentators, when they are not sneering at Kerkorian and Iacocca, like to suggest that what happens in the States presages what will happen here. Sometimes, in relation to economic conditions, for example, this is true. But in this instance it is not.
Only the corporate culture that can create an Iacocca or a Kerkorian could come up with a bid like the one for Chrysler. Even in a Hanson or a Goldsmith, we don’t have them like that over here.
George Pitcher is joint managing director of media consultancy Luther Pendragon.