In a dramatic bid to foil a hostile takeover by Hilton Hotels Corp., ITT Corp. on Monday agreed to be acquired by fast-growing Starwood Lodging Trust in a $13.3-billion deal that could create the world’s largest hotel company.
Beverly Hills-based Hilton--whose chief executive, Stephen Bollenbach, has led a tenacious, nine-month battle for ITT--would risk undermining its financial health if it tried to top Starwood’s bid, according to industry analysts. Starwood’s offer for ITT, which owns the Sheraton hotel chain and Caesars Palace in Las Vegas, is about 17% higher than Hilton’s current bid.
“It would dilute [Hilton’s] earnings and force them to pay too much for the [ITT] assets,” said hotel industry analyst Joseph V. Coccimiglio at Prudential Securities. “I don’t think Bollenbach would do that.”
Hilton will face a huge, worldwide rival if shareholders approve the marriage of New York-based ITT and Starwood, a Phoenix-based real estate investment trust that recently agreed to acquire the luxury Westin hotel chain for about $1 billion. The two companies combined would generate about $10 billion a year in revenue and have about 650 hotels in 70 countries.
Under the deal, Starwood would pay $82 a share in cash and Starwood stock for each ITT share, or a total of $9.8 billion for ITT. In addition, Starwood would also assume about $3.5 billion in ITT debt. Hilton’s most recent offer is valued at $70 a share in cash and stock and includes the assumption of ITT debt.
Wall Street greeted the Starwood-ITT announcement warmly. On the New York Stock Exchange on Monday, ITT shares soared $5.38 to $75.75, while Starwood rose $1.13 to $57.63. Hilton added 56 cents, to $33.
“This transaction gives the combined companies a sound balance sheet, which will enable us to continue to be a growth company and to take advantage of our current acquisition pipeline and a rapidly consolidating industry,” Starwood Chairman Barry S. Sternlicht, who will head the merged companies as chairman and chief executive, said in a statement.
Rand Araskog, ITT’s longtime chairman who has waged an aggressive campaign against a Hilton takeover, would give up his top post but serve on the new company’s board of directors.
“This is the right structure for our assets, the right transaction for our shareholders and the right opportunity for our employees,” Araskog said in a statement.
It is now up to Hilton to increase its offer, drop out of the race or let ITT stockholders vote on its current bid during the ITT shareholders meeting Nov. 12.
Hilton spokesman Marc Grossman said the company would not comment or respond to the Starwood offer until it had time to view it more closely.
Only a few weeks ago, it looked like Hilton had gained the upper hand in the takeover battle. A Nevada federal judge ruled that ITT must allow shareholders to vote on a management-backed plan to break up the firm into a trio of independent companies. Analysts at the time said that most shareholders would prefer Hilton’s takeover offer over ITT management’s proposal.
But after the loss in Nevada federal court, Starwood Chairman Sternlicht called ITT officials about a possible merger, said ITT spokesman Jim Gallagher. Both companies had talked briefly about a merger in April, but nothing came of the negotiations.