ITT rejects takeover offer

Gary Thompson

Friday, Aug. 15, 1997 | 11:20 a.m.

Hilton Hotels Corp. said ITT Corp.'s rejection of its new $70-a-share tender offer was a "charade" and vowed to pursue the hostile takeover in federal court in Nevada.

Hilton's comments came after ITT directors unanimously opposed Hilton's increased bid Thursday, calling it "inadequate and not in the best interests of ITT shareholders."

But a Hilton executive characterized the ITT vote as posturing.

"Everything they've said is for show, to create a public record so they can go to court and say, 'We considered it,'" said Marc Grossman. "But they had no intention of considering our offer or letting shareholders vote on it.

"Early in the process, they said they were delaying their annual meeting to give shareholders more time to make a decision. That's baloney. They have no intention of letting their shareholders anywhere near this."

"There's no posturing here whatsoever," countered ITT executive Jim Gallagher. "The board made a careful and deliberate decision, compared the two offers and recommended to shareholders that ITT's comprehensive restructuring plan was better."

That restructuring plan calls for ITT to split into three companies after it buys back 30 million of its 118 million common shares for $70 a share and repurchases $2 billion of debt.

After ITT announced the debt and equity tender offers a month ago, Hilton raised its original $55-a-share bid to $70. Hilton's bid includes the assumption of about $3.2 billion in ITT debt.

ITT said Thursday Hilton's offer "doesn't reflect the inherent value of ITT," and offered several arguments against the Hilton bid, including potential "competition, cannibalization and conflicts" between Hilton and ITT hotel brands around the world, as well as possible tax penalties.

"Our plan will allow ITT shareholders to realize near-term value for their investment while preserving their full participation in the potential long-term upside of owning three strong, independent companies," said ITT Chairman Rand Araskog.

ITT also criticized what it called "Hilton management's lack of a track record in growing a large chain of hotels," and said Hilton's plan "would devalue the premium Sheraton brand and antagonize many of our property owners who have contracted with ITT to manage or franchise their properties around the world."

"This from guys who overpaid for a TV station and overpaid for the Desert Inn, then announced a sale of half the Desert Inn to Marvin Davis that is actually nothing more than a loan?" said Grossman.

"It's ludicrous. If the test of a management track record is creating value for shareholders, our management gets straight A's and theirs has flunked out of school."

Gallagher said ITT stock has increased $15 billion in aggregate value since Jan. 1, 1992.

Nevertheless, Grossman said, the issue will ultimately be decided when a federal court here rules on whether ITT shareholders have a right to approve the ITT plan.

"We've had a lot of ITT shareholders contact us to voice their support for a vote," he said. "We believe there is a compelling argument to be made for allowing shareholders their right to vote on a matter like this.

"It would be bad public policy for a court to allow a company to use machinations like this to avoid their shareholders. When you buy a share of stock, you buy the right to vote on the future of the company."

"When you buy a share of stock, you get the right to elect a board of directors to represent you," Gallagher said. "And ITT's board has an exemplary record of representing its shareholders.

"What the directors have decided here is to give ITT shareholders a dividend. That's what the split it. And a dividend never requires a shareholder vote."

ITT common closed at $63.75, down 19 cents, while Hilton's rose 6 cents to $30.19 in Thursday stock trading. ITT announced its board vote after the market closed.