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Starwood chief raises ante
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November 7, 1997: 7:57 p.m. ET
Days before crucial ITT vote, Sternlicht raises bid to $10.2 billion
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NEW YORK (CNNfn) - Starwood Lodging Trust Chief Executive Barry Sternlicht Friday said he's confident his company's sweetened $10.2 billion bid for ITT Corp. will satisfy shareholders.
As rival Hilton Hotels Corp. threatened to walk away from the bitter bidding war for ITT, Starwood on Friday upped its offer to $85 a share and increased the cash portion of its bid to $25.50 from $15.
Hilton's $9.3 billion proposal has won support among some shareholders because it includes more cash.
However, Sternilicht said Starwood's latest proposal carries a hefty premium to Hilton and should appeal to two key groups -- Wall Street shareholders who prefer cash and large institutional holders who are willing to accept stock.
"We don't believe the Hilton bid is superior in any way," Sternlicht told CNNfn's "Street Sweep." "We have an arbitrage community that seems to prefer cash…on the other side are institutional shareholders who prefer securities."
Starwood's revised bid is the latest salvo in the battle for ITT, owner of Sheraton hotels and Caesars casinos. Hilton earlier this week raised its bid for a second time to $9.3 billion or around $80 a share.
The move put Hilton within striking distance of Starwood's offer, prompting ITT to hold brief talks with Hilton representatives earlier this week. However, Hilton withdrew from those talks Thursday, claiming ITT was withholding information and favoring Starwood's bid.
Late Friday, ITT received a big boost when a The Institute of Shareholder Services (ISS), which issues advice on proxy fights to a group of about 400 big institutions, came out in favor of ITT's board.
In a 25-page analysis, ISS recommended ITT shareholders re-elect the company's board at its annual meeting next Wednesday. The recommendation is a blow to Hilton which is seeking to oust ITT's board and install a Hilton-backed slate of directors.
ISS said the current directors are best-positioned to continue the auction process of the company, noting that bids could fall apart and shareholders could lose money if a new board is seated.
"If the ITT board does not conduct a genuine auction, shareholders have an opportunity to rectify it," the report said.
In other developments, ITT appointed four independent directors to evaluate the bids to counter accusations that it was being unfair.
Analysts had said one of the strengths of Hilton's bid was that it was cash-rich. Hilton is offering $9.3 billion in cash, or $80 a share, for 55 percent of ITT. The remainder of ITT shares would have been acquired in a 2-for-1 stock swap.
However, Sternlicht said concern about Hilton's cash portion may be overblown. He said several large shareholders representing 20 percent of ITT's shareholders indicated they would prefer to take substantially all of the payment in Starwood shares.
Earlier, some on Wall Street had speculated Fidelity Investments, one of the largest ITT shareholders, may have an agreement with Starwood about the offer. But Fidelty issued a statement denying it had any agreement or understanding with any party about the ITT proxy. While Sternlicht said he had talked to some institutions, he declined to comment specifically on Fidelity. (266K WAV) or (267K AIFF)
Starwood also moved up the timetable and agreed to complete the deal by Feb. 1. If the deal closes after Jan. 31, Starwood will pay an annual interest rate of 7 percent on the total offer in cash.
John Roh, managing director of Schroder & Co., reacted favorably to the Starwood offer.
"I don't think (Sternlicht) topped Hilton, but he's clearly closed the gap," Roh told CNNfn. "More cash wouldn't hurt."
ITT declined to comment on the Starwood move.
But the price could still rise. Just before Starwood upped its offer, Hilton was working to get buyout firm Kohlberg Kravis Roberts & Co. to help it sweeten its own bid for ITT.
Sternlicht said Starwood has also talked to KKR but he declined to elaborate on the talks.
ITT released both KKR and Mirage Resorts, which both had expressed an interest in either all of ITT or some of its assets, from confidentiality agreements. That leaves KRR and Mirage free to discuss potential deals with its competitors.
ITT was originally expected to settle the ownership issue at the Wednesday meeting. But the company said its board may need the deadline extended to select the best bid.
Starwood stock (HOT) was down 1 at 57-13/16 at the close of trading Friday on the New York Stock Exchange. Hilton (HLT) was down 1/8 at 31-1/2. ITT stock (ITT) was up 11/16 at 80-5/16. 
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