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Hilton boosts ITT bid
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November 3, 1997: 8:22 p.m. ET
Chain hikes cash, adds stock in attempt to thwart Starwood
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NEW YORK (CNNfn) - Hilton Hotels Corp. Monday increased its hostile bid for ITT Corp. to $80 a share, raising the stakes in its battle for the hotel and gambling chain and fueling talk of a counter offer by rival Starwood Lodging Corp.
The move was an about-face for Hilton, which only two weeks ago all but conceded defeat to Starwood Lodging by telling analysts it would not participate in a bidding war.
However, Hilton Chief Executive Stephen Bollenbach said falling interest rates allowed Hilton to recalculate some of its assumptions.
"Events change, and events have changed a lot in the last couple of weeks," Bollenbach told CNN's "Moneyline with Lou Dobbs", adding once ITT announced a deal with Starwood, it was essentially putting itself up for sale.
The move comes just nine days before ITT's annual meeting, where Hilton is seeking to oust ITT's board in a shareholder vote and thwart Starwood's attempt to acquire ITT..
Starwood, a Phoenix-based trust and hotel operator, has offered the equivalent of $82 a share, or $9.8 billion, for New York-based ITT, owner of Sheraton hotels, Caesars casinos and various other businesses.
Starwood's deal calls for it to pay $15 in cash and $67 in stock. Under its revised bid, Hilton would pay $80 in cash for 55 percent of ITT's shares and swap two Hilton shares for each remaining ITT share.
Hilton also included a new preferred stock meant to insure ITT shareholders would still own stock worth $80 per share up to one year after the merger. Hilton's previous bid was $70 a share -- half in cash and half in stock -- for a total of about $8.3 billion.
While Hilton's offer still falls short of Starwood's $82 a share proposal it includes more cash than Starwood's offer, which Bollenbach says could be attractive given the market's ups and downs of late. (339K WAV) or (339K AIFF)
Some ITT shareholders agree that Hilton's higher cash portion could tip the scales in Hilton's favor unless Starwood comes back with a better deal.
"At this point, Hilton has the superior bid," " Mario Gabelli, chairman of Gabelli Funds Inc., told CNNfn. "Essentially, Starwood would have to change their mix." Gabelli owns 2.4 million shares of ITT.
Most industry watchers expect Starwood to respond with a higher bid in the next few days.
"I'm convinced Starwood's going to raise their bid. Starwood has a lot more wiggle room, a lot of flexibility to go beyond $82 a share," said James Murren, hotel analyst at Deutsche Morgan Grenfell (DMG). Murren estimated Starwood would be able to afford between $87 and $88 a share.
Starwood, once a stranger to the financial spotlight, has built a powerful operation in a short period of time.
In just three years, Starwood has become the largest real estate investment trust company in the U.S., and now, with more than 800 hotels valued at over $20 billion, the company is poised to become the largest lodging company in the world.
A key part of Starwood's flexibility rests with its unique paired-share structure. Under the structure of a real-estate investment trust, one arm of the trust owns the brick and mortar of the hotel buildings, and pays no corporate taxes while the hotel operations are traded as a parallel stock, and pay taxes.
Returns on the paired stock have been stellar, with earnings growing 30 percent a year. Four years ago, Starwood (HOT) traded at under 5, but now trades near 60. At the close of trading on the New York Stock Exchange Monday, shares fell 2-3/8 to 57-7/16.
Bollenbach, who launched the hostile bid for ITT nine months ago, said he doesn't know if Starwood will respond to Hilton's latest offer with a higher bid. "They came into this situation later in the game," Bollenbach said. "I don't know what kind of plans they have so I have no idea."
Starwood officials were unavailable to comment. In a brief statement, ITT said it will review the new Hilton offer.
Separately, Hilton filed a $500 million lawsuit against ITT and its directors, seeking to block payment of a $225 million break up fee and halt some $165 million in golden parachute payments to ITT director. 
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Hilton Corp.
ITT Corp.
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