Hilton Stands Pat With $9.3-Billion Bid for ITT

Hilton Hotels Corp. on Monday said it won’t raise its $9.3-billion offer for ITT Corp., disappointing some investors and possibly hurting its chances in this week’s showdown with rival suitor Starwood Lodging Trust.

The fate of ITT, owner of Sheraton hotels and Caesars casinos, now hangs on Wednesday’s proxy contest between directors nominated by ITT and Hilton. Starwood is bidding $85 a share in cash and stock.

Beverly Hills-based Hilton, which launched a bid for ITT in January, is seeking to buy the company for $80 a share in stock and cash.

Hilton said it decided not to raise its bid because it believes the offer is superior to Starwood’s.

In a conference call, Hilton Chief Executive Stephen Bollenbach described Starwood’s offer as “Monopoly money,” saying his company’s offer contains more cash and a better stock.

Starwood Chief Executive Barry Sternlicht said he was “shocked and outraged” by those comments.

“Hilton’s tactics seem to be nothing but scare tactics in an effort to manipulate our stock,” he told reporters in a conference call. He also said Starwood had no plans to change its offer.

The comments came as Hilton and ITT prepared to square off at Wednesday’s ITT shareholders meeting. Hilton is seeking to oust the ITT board and install its own slate of directors.

While ITT shareholders will not actually vote on either takeover bid, a vote to retain ITT’s current board would be a sign of support for the bid by Starwood.

Hilton, which has vowed to drop out if it loses the proxy fight, said Monday that the bid would “automatically terminate” if a majority of ITT directors are reelected.

Wall Street had widely expected Hilton to make another move in the bidding war, even though a higher offer could have risked hurting the company’s earnings. In New York Stock Exchange trading, ITT stock fell $1.88 to close at $78.44; Hilton shares lost 25 cents to $31.25; Starwood declined 31 cents to $57.50.

“I think I’m more surprised than disappointed. The implication is that this makes it much more difficult for Hilton,” said Steve Cohen, director of research at money manager Kellner, DiLeo & Co.

“Had Hilton increased the bid by a few dollars, I think they would have helped themselves enormously and they may have won the vote,” he said.

Hilton said that if its nominees are elected to ITT’s board, it plans to restructure the merger so ITT shareholders would receive Hilton stock in a tax-free transaction. Hilton noted that the Starwood proposal would be fully taxable.

“We fought for nine months to give ITT shareholders this choice, a choice that the incumbent directors fought equally hard to deny them,” Bollenbach said in a statement. “We have every confidence that ITT shareholders will make the right decision to elect our nominees and accept our offer.”

Hilton said it considered a range of options regarding ITT before deciding not to increase its offer.

“We spent most of the weekend discussing our options. We looked at a lot of options,” spokesman Marc Grossman said.

Bollenbach also sought to quash speculation that another group would join its bid.

“I am absolutely certain they’re not going to get involved with our bid,” Bollenbach told analysts in a conference call. Mirage Resorts Inc. and buyout firm Kohlberg Kravis Roberts & Co. were rumored as possible partners, with sources saying KKR last week spoke with both Hilton and Starwood.