ITT rejects Hilton's $10.5 billion, favoring independence N.Y. Knicks, Rangers, Garden on the block

February 13, 1997|By BLOOMBERG NEWS

NEW YORK -- ITT Corp. rejected Hilton Hotels Corp.'s $10.5 billion takeover offer yesterday as too low and vowed to remain independent by investing in and expanding its Caesars World casinos and Sheraton hotel chain.

To keep investors from selling shares to Hilton, ITT intends to boost its sagging stock price by selling such properties as Madison Square Garden, the New York Knicks and the New York Rangers, which it bought in March 1995 but never fit in with its main businesses.

The arena, teams and other peripheral assets could fetch more than $3 billion, analysts said.

ITT said an acquisition by Hilton, with its 240 hotels worldwide, would cannibalize business at ITT's Sheraton hotels and may create an illegal lodging monopoly in some cities. ITT also is suing Hilton for allegedly using confidential information about ITT to prepare its bid.

Before deciding whether to side with Hilton or ITT in this dispute, many investors are waiting to see what else ITT is going to do to remain independent.

"There is undoubtedly going to be more to come," said Rob Lyon, president of Institutional Capital Corp., which owned 1.8 million ITT shares on Sept. 30. "ITT has to further flesh out what they have to do to help shareholders."

The rejection, which was expected by analysts and investors, increases pressure on Hilton to raise its $55-a-share offer, which Hilton said it might do after looking at ITT's books. The purchase would make Hilton the largest casino and hotel company in the world with about 655 hotels and 30 casinos.

"Nobody is going to tender any stock at these prices and my guess is that Hilton will raise the price," said Marvin Roffman, a casino analyst at Roffman Miller Associates in Philadelphia.

ITT shares rose $1.625 to close at $57.625 yesterday. Hilton shares fell 50 cents to $27.625. Hilton plans to press ahead with its cash tender offer for 50.1 percent of ITT's shares, and buy the remaining ITT shares for stock. It will assume $4 billion in ITT debt. Hilton also has picked a slate of directors to replace ITT's current board. "Nothing that is in this response changes our plans or intent to make this happen," said Hilton spokesman Marc Grossman.

Investment bankers Goldman, Sachs & Co. and Lazard Freres & Co. determined that Hilton's offer was inadequate and does not reflect the inherent value of ITT, the company said.

ITT said its own plan will produce greater value for ITT shareholders. ITT's stock has languished since the company was spun off from its insurance and other businesses in December 1995. Before Hilton made its offer Jan. 27, ITT's stock had fallen 37 percent from a 52-week high of $68.25 in June.

Much of the drop stems from an expensive $2.5 billion casino building program ITT announced in June, which hurt earnings and rattled investor confidence. ITT said it intends to pursue the expansion, although analysts speculate it could be scaled back.

ITT said it likely will sell its 50 percent interest in Madison Square Garden, the New York Knicks and Rangers sports teams and the MSG cable network, which were intended to turn the company into a complete entertainment provider. ITT also owns a television station, WBIS+, with Dow Jones & Co.

The cash from such sales could be used to buy back stock, pay a dividend to shareholders, or make acquisitions for its hotel and casino businesses, ITT said in a Securities and Exchange Commission filing yesterday.

"The plan is to focus on those two core businesses [hotels and casinos] while reviewing the options with our other businesses," ITT spokesman Jim Gallagher said.

ITT is largely pursuing the same plan that Hilton proposed when it offered to buy ITT Jan. 27. If ITT successfully sells those assets, Hilton would simply adjust its bid, investors said.

ITT said it will fight the hostile takeover in Nevada federal court, where Hilton filed a lawsuit to keep ITT from defending itself by increasing its board to as many as 25 directors from 11, and permitting ITT holders other than Hilton to buy discounted stock.

Pub Date: 2/13/97

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