ITT stockholders pick Starwood over Hilton Current directors re-elected by 2-to-1 after 10-month drama

Lodging and gaming

November 13, 1997|By BLOOMBERG NEWS

NEW YORK -- ITT Corp.'s shareholders backed Starwood Lodging Trust's $13.7 billion takeover bid yesterday, ending Hilton Hotels Corp.'s 10-month pursuit of the hotel and casino company.

Shareholders voted 2-to-1 to re-elect ITT directors, rejecting Hilton's rival slate and $12.8 billion offer. ITT Chairman Rand Araskog said the company accepted Starwood's $85-a-share offer, although the agreement doesn't preclude offers from anybody else. Hilton had previously said it would drop its pursuit of ITT if its directors were rejected.

ITT's Sheraton and the soon-to-be purchased Westin chain give Starwood Chairman Barry Sternlicht well-known upscale brands and cap Starwood's transformation from a little-known real estate investment trust into the world's biggest hotel company.

"They've become a far more significant game in town," said John Rohs, an analyst at Schroder & Co. "You could describe the last year as the year of the REIT."

The vote was a bitter defeat for Hilton Chief Executive Officer Stephen Bollenbach, who termed the result "disappointing." Hilton faces an uphill battle to boost earnings and cash flow because few large takeover candidates remain following the busiest year ever of acquisitions.

"Where's that [growth] going to come from?" asked Brad Cohen, an analyst at Sands Bros. & Co. "There's a credibility question with management."

ITT shares fell 81 cents to close at $75.31. Starwood shares fell 93 cents to $54.31, while Hilton's climbed 25 cents to $31.25.

ITT said 65 million proxy votes were cast for ITT's board and 25 million for Hilton's, according to a preliminary count. The final vote may not be known for a week or more.

Investors are betting that Starwood's offer consisting mostly of cash, will be worth more than Hilton's $80-a-share bid, which contained $2.2 billion more in cash. Starwood's shares, which have jumped 76 percent in a year, and its growth prospects swayed investors.

"The more attractive offer won," said Jamie Handwerker, an analyst with Furman Selz LLC.

Starwood was helped because 40 percent of its holders also own shares of ITT, including Fidelity Management, the largest investor in each company, Sternlicht said. That helped offset questions Bollenbach raised about the value of Starwood's stock and the future of REITs, as well as Hilton's higher cash amount.

"The larger institutions have made a lot of money investing with Starwood, so they had faith," said Mark Greenberg, portfolio manager of Invesco's Leisure Fund, which owns ITT and Hilton shares.

With ITT, Phoenix-based Starwood will have 650 hotels in 70 countries and annual revenue of more than $10 billion. Sternlicht expects to complete the purchase in January. "This company could be potentially lethal," he said. "Over time, this will be a company of champions."

Starwood, which has a small gaming operation, will reassess ITT's Caesars World casinos over the next 18 months. "If they meet our expectations, we will all be a happy company," he said.

Starwood will also consider selling ITT's telephone book and educational services divisions or finding a partner, he said.

Bollenbach now must find a way to meet his plan to boost earnings per share and cash flow 25 percent in the next four to five years.

"There is no other lodging entity that can do what Sheraton would have done for Hilton overseas," said Arthur Adler, a principal with Cooper & Lybrand LLC's lodging and gaming group.

His options include expanding Hilton's relationship with Britain's Ladbroke Group PLC, which owns the international rights to Hilton's name, Adler said. Buying back shares is an option if acquisitions aren't available, Bollenbach said.

Pub Date: 11/13/97

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