Hilton Raises Bid for ITT, Pressuring Rival
Breathing new life into its takeover offer, Hilton Hotels Corp. on Monday sweetened its bid to acquire ITT Corp. to about $12.8 billion, putting rival suitor Starwood Lodging Trust under pressure to raise its bid, industry analysts said.
The new Hilton offer comes a little more than a week before the fate of ITT, which owns Sheraton hotels and Caesars Palace in Las Vegas, is determined at its annual shareholders meeting in New York. Shareholders will vote on replacing ITT’s current board of directors with a slate of candidates selected by Hilton.
“This keeps [Hilton] in the game, and they have a chance now of winning favor with the institutional investors” that hold ITT stock, said lodging industry analyst Harold Vogel at Cowen & Co. But “there is no assurance of anything yet.”
Under the most recent offer, ITT stockholders would get $80 a share--or a total of $9.3 billion--in the form of cash and two shares of Hilton stock. In addition, Beverly Hills-based Hilton would assume $3.5 billion of ITT debt.
Hilton’s offer remains below Starwood’s $82-a-share bid, which was approved last month by ITT’s board of directors. However, Hilton officials point out that their bid contains more cash--$44 a share, compared with $15 a share for Starwood--that would be paid upfront. In addition, Hilton will guarantee that its stock would trade at $40 a share for one year after the merger, or it will make up the difference to ITT stockholders. Hilton will pay a maximum of $12 a share to cover any shortfall in its stock price.
“The fact that we are betting on the strength of our own stock ensures that both Hilton and ITT shareholders will participate in the more certain upside potential of a combined Hilton-ITT that will be the world’s leading lodging and gaming company,” said Hilton President and Chief Executive Stephen F. Bollenbach in a statement.
ITT said its board will evaluate the new offer.
Hilton shares rose $1 to close at $31.81, and ITT stock climbed $1.94 to close at $76.63. Starwood stock fell $2.38 to close at $57.44. All trade on the New York Stock Exchange. Hilton had said two weeks ago that it would not raise its previous $70-per-share offer to top Starwood’s deal. However, a drop in interest rates and ITT’s better-than-expected financial results prompted Hilton to boost its bid, according to company officials.
Some industry observers said that they were concerned that Hilton’s bond ratings might suffer as a result of taking on more debt to finance its higher ITT bid. Starwood, which is organized as a special class of real estate investment trust, also pays substantially less in corporate taxes than traditional companies such as Hilton.
“I don’t think Hilton can win a bidding war” against a company like Starwood, said industry analyst James Murren at Deutsche Morgan Grenfell. “It’s our view that we have not seen the last of this, and that Starwood is likely to raise their bid.”
