Hotelier Barron Hilton will acquire effective control of Hilton Hotels under a settlement announced Friday in his protracted legal tug of war for a major block of the company’s stock.
The settlement would increase his voting power to 34% of Hilton Hotels’ shares and end a years-long battle involving stock held by the estate of his late father, Conrad N. Hilton. The hotel chain founder had bequeathed most of his estate to his charitable foundation when he died nearly 10 years ago at age 91.
Barron Hilton issued a statement declaring that the settlement would have pleased his father and satisfied Conrad Hilton’s desire both to benefit charity and keep control of the company’s stock within the family.
Under the settlement, Barron Hilton will divide up shares in the estate with the Conrad N. Hilton Foundation, with which he had been jousting in court. Neither Hilton nor the foundation would actually pay for the shares. Some shares will be put in trust, with income split between the foundation and Barron Hilton.
The path to a settlement was paved last March with a key appeals court victory in which Barron Hilton was found to be entitled to exercise an option to buy a 28% stake in Hilton Hotels from his father’s estate rather than have the 13.6 million shares pass to the Conrad N. Hilton Foundation, an organization that is best known for contributions to several orders of Catholic nuns.
The price to be paid by Barron Hilton was left to be determined in court.
Barron Hilton, chairman and chief executive of the company, originally claimed the right to buy the block at the market price that prevailed when his father died, or about $165 million. The 13.6 million shares have a current market value of about $654 million.
In the negotiated settlement, Barron Hilton apparently would receive about $334 million of that value while the foundation would receive about $320 million.
Under the agreement, Barron Hilton would get just over 4 million shares outright. At Friday’s closing price of $48.25 on the New York Stock Exchange, those shares are worth $195 million.
In addition, he would be entitled to 60% of the income from another 6 million shares that are to be held in a charitable trust during his lifetime. The value of that income, from a formula indicated by his attorney, Ronald E. Gother, is $139 million.
With shares he presently owns, Barron Hilton would have sole voting power over about 25% of Hilton Hotels’ outstanding stock. He also would be the trustee over the 6 million shares in trust, increasing his voting power to about 34%.
The foundation itself stands to receive about 3.5 million shares of the hotel stock, plus 40% of the income from the 6 million shares put into trust. Perhaps more important, the foundation will become owner of those 6 million shares upon Barron Hilton’s death or in 20 years, whichever is later.
The settlement is subject to a definitive agreement, court approval and a favorable Internal Revenue Service ruling on the tax aspects. Gother said no major matters remain to be resolved by negotiation, and a definitive agreement is expected soon.
In a prepared statement, Barron Hilton said Friday that after he received a favorable appeals court ruling, it gave him “the opportunity to structure an arrangement whereby my father’s two objectives, retaining control of the stock in family hands and benefiting charity through the Conrad N. Hilton Foundation, can both be achieved. I am confident that my father would be pleased with this accord.”
The crucial event in the long legal battle came when the California Court of Appeal upheld Barron Hilton on his right to exercise his option for the hotel stock left by his father.
That reversed a 1986 Los Angeles Superior Court ruling that the foundation could inherit the stock itself. The issue involved complex IRS considerations of whether more than 20% of Hilton Hotels could be held by the foundation.
Last June, the California Supreme Court let stand the appeals court ruling.