ITT Corp. on Wednesday rejected as “inadequate” Hilton Hotel Corp.'s $10.5- billion takeover offer and said it will explore the sale of its sports and entertainment operations, which include Madison Square Garden and the New York Knicks basketball team.
New York-based ITT, which also owns the Sheraton hotel chain and Caesars Palace in Las Vegas, said it has also asked a federal judge in Nevada to block the takeover because Hilton allegedly obtained confidential company information.
Hilton, which has been preparing for a takeover battle, was unfazed by ITT’s response and said its efforts to merge both companies will continue.
“We have put a strong offer on the table and remain convinced that this combination is in the best interests of ITT’s shareholders,” said Hilton President and Chief Executive Stephen F. Bollenbach in a statement.
Hilton has offered ITT stockholders $55 a share in cash and stock for a total of $6.5 billion. ITT stock was trading in the low- to mid-$40s when the offer was made last month. The company would also assume $4 billion in ITT debt.
On the New York Stock Exchange on Wednesday, ITT shares jumped $1.625 to $57.625 on investor speculation of a higher Hilton offer. Meanwhile, Hilton stock eased 50 cents to $27.625.
Hilton has said it would consider raising its bid only after it reviews ITT’s books. A merger of the two companies would dramatically expand the size of Hilton’s hotel and casino gambling operations as well as trigger substantial cost savings.
In rejecting Hilton’s bid, ITT Chairman Rand V. Araskog said in a statement that the company’s board of directors found many potential antitrust and gaming law issues related to a merger of the two companies.
“There are serious business conflicts which have always confronted a Sheraton/Hilton combination,” said Araskog, referring to the ownership and management of multiple Hilton and Sheraton hotels in the same markets.
Borrowing a page from Hilton’s own takeover proposal, ITT said “it is reviewing various options” to increase the value of the company by, for example, cashing in on its recently acquired sports and entertainment operations and an educational services division. The company would instead focus primarily on the hotel and gambling businesses.
In March 1995, ITT teamed up with Cablevision Systems Corp. to pay about $1 billion for New York’s Madison Square Garden, a large regional cable television sports network as well as the New York Knicks and the New York Rangers hockey team. ITT and Dow Jones also bought a New York-area television station for $207 million.
ITT could raise more than $2 billion by putting those operations on the auction block, according to industry estimates. ITT could announce such sales over the next few weeks, said gaming industry analyst Joseph V. Coccimiglio.
“I don’t think they will waste any time,” said Coccimiglio.
With ITT refusing to discuss a negotiated sale, investors and industry observers will now turn their attention to the legal maneuvers between both companies and a Hilton effort to oust the ITT board.
On Wednesday, ITT asked a U.S. District judge in Las Vegas to block the takeover because Hilton allegedly used confidential ITT information “to the detriment of ITT and its stockholders.” ITT claimed that Hilton illegally obtained the information through its recent acquisition of Bally Entertainment Corp. ITT said it provided Bally with sensitive materials as part of failed merger discussions early last year with Bally.
A Hilton spokesman described the lawsuit as “absolutely without merit.”
Hilton has previously filed suit in Nevada to try to neutralize some of ITT’s anti-takeover defenses. A Nevada judge is expected to rule on Hilton’s requests in March.
Earlier this week, Hilton, which has purchased more than 300,000 shares of ITT stock, continued preparations for a proxy fight by announcing a slate of 25 candidates that it wants elected to replace ITT’s current board of directors.
The election normally takes place in May during the company’s annual shareholders’ meeting. But ITT has yet to set a date for the meeting.