Hilton blasts ITT deal

Gary Thompson

Tuesday, June 3, 1997 | 11:32 a.m.

Hilton Hotels Corp. has fired another salvo at takeover target ITT Corp., accusing it of accepting "irresponsible and unnecessary" conditions in the $200 million sale of five hotels to FelCor Suite Hotels Inc.

But ITT said the FelCor deal is part of a "long-term, strategic alliance" that could result in some hotels currently managed by Hilton for FelCor being converted to the ITT Sheraton brand name.

The latest developments reflected yet another escalation in the increasingly hostile -- and at times personal -- war between Hilton and ITT.

It began in January, when Hilton announced an unsolicited $55-a-share offer for ITT that was unanimously rejected by ITT directors.

Since then, the battleground has shifted from boardrooms to courtrooms to newsrooms, as the opposing sides continue to jockey for a propaganda edge they hope will sway the ITT shareholders who'll ultimately decide who is best suited to control ITT.

The war has included ITT's use of private investigators to probe the personal lives of Hilton's executives and stories designed to cast doubts about the judgment of those executives being planted in certain financial publications.

In the latest developments, Hilton President Steve Bollenbach wrote a letter to ITT directors Monday saying "some disturbing aspects of that proposed (FelCor) transaction have recently come to light.

"In particular, we now understand that ITT proposes to include a penalty provision ... under which FelCor would be able to terminate ITT's right to manage these five hotels in the event of a change of control of ITT."

Bollenbach said such a provision means ITT shareholders would lose "an important asset" -- future management payments -- if ITT's current management is replaced.

Bollenbach said Hilton is willing to buy the five hotels, located throughout the United States, at the same price and on the same terms as FelCor.

But he said Hilton would exclude the change-of-control penalty, an offer he called "clearly more advantageous to ITT shareholders."

He also wrote that "if ITT is looking to dispose of any more of its core assets, Hilton is a ready, willing and able buyer."

ITT spokesman Jim Gallagher said FelCor had requested the change-of-control provision and denied that the Hilton counteroffer would be more advantageous to ITT shareholders.

"The FelCor deal will be accretive to ITT earnings in 1998. Every asset sale we've made since Jan. 27, when Hilton launched its hostile offer, has been at exceptional prices and has added value for our shareholders," he said.

"A great majority of the 58 new hotel-management contracts we've signed since the beginning of the year have included such language at the request of the owners," Gallagher said.

"Hilton's concern seems to be that if, in fact, they take control of ITT, then FelCor would rescind the management contract. The change-of-control language means the hotel owner has the right to consider whether they want to be managed by the new company owner if there's a change in control of ITT.

"When this whole fight began, our board said they believed the Sheraton name was far more valuable than Hilton," Gallagher said. "They expressed a concern that certain hotel owners wouldn't want to see the Sheraton name denigrated by any relationship with Hilton.

"FelCor owns some hotels that are managed by Hilton right now. They have the opportunity to reflag those properties because they own them.

"In the recent past, Mr. Bollenbach tried to do the same deal with FelCor that we just did. Obviously, Felcor wanted to do the deal with Sheraton, not Hilton.

"Hilton fails to realize we've signed a long-term strategic alliance where FelCor and ITT will look for properties that FelCor can buy and that Sheraton will put its flag on and manage."

Gallagher said Bollenbach's letter will be discussed when ITT's directors meet next week.

"Hilton seems to fail to understand that we are an independent company and the steps we take are meant to protect ITT's shareholders," he said.

"We are very concerned about Hilton's interference in our due course of business. This is a clear attempt by Hilton to undermine our relationships with current and future owners, and we regard these actions as extremely hostile."

Hilton spokesman Marc Grossman said there's nothing hostile in Bollenbach's offer.

"The point is, what's a better deal for ITT's shareholders? With that change-of-control provision, ITT's management is saying, 'Unless you shareholders let us keep our jobs, these valuable management contracts will be taken away and you'll get nothing.'

"This move, like most moves they've made since January, is the sign of an entrenched management not trying to increase shareholder value but doing whatever is necessary to keep their positions.

"If they were truly interested in shareholder value," Grossman said, "then why don't they try to make the best deal for their shareholders? If you're running a normal business and you have an asset you want to sell and there's an announced, interested, willing buyer, why not talk to that buyer?

"Clearly, doing what's best for the shareholders is not what this or, frankly, their other transactions are all about."

He also disputed Gallagher's characterization of the Hilton brand name.

"Sheraton is a good brand name," Grossman said. "But check any survey or study of brand names and you'll find Hilton is not only one of the most recognized but one of the most esteemed brand names in the world, ahead of Sheraton."

After Hilton's offer was announced, ITT embarked on a program to sell so-called "noncore" assets unrelated to its gaming and lodging holdings.

The sales included ITT's stakes in a French telecommunications company and Madison Square Garden. The sales added about $1.5 billion to ITT's coffers, which analysts expect the company to use for share repurchases, special dividends or acquisitions.

ITT, which owns Caesars World resorts, also has put the Desert Inn on the market, with an asking price of $350 million to $400 million. Billionaires Marvin Davis and Kirk Kerkorian have been rumored to be among those who've looked at the Desert Inn, but some observers are skeptical about those rumors.

"Marvin Davis is the world's biggest tire kicker and a real bargain hunter, and I doubt he'll consider that a good price for the Desert Inn," said one analyst who requested anonymity.

"And Kirk Kerkorian isn't in the habit of selling a property for $160 million and buying it back a few years later for $350 million."

Though the Desert Inn is a highly recognized gaming property, Gallagher said ITT considers it a noncore asset because it competes with the Caesars brand and is a favorite of high-rolling gamblers, particularly baccarat players.

"Between Caesars Palace and the DI, we have 40 percent of the baccarat business in Las Vegas," he said. "That's a very volatile business, and we think it's in ITT's interest to sell it if we can get the right price."