Starwood agrees to buy ITT

Gary Thompson

Monday, Oct. 20, 1997 | 9:43 a.m.

ITT Corp. has found a "white knight" to help stave off a hostile takeover attempt by Hilton Hotels Corp.

Starwood Lodging Trust said today it has agreed to buy ITT for $82 a share -- $15 cash and $67 in Starwood stock -- topping Hilton's $70-per-share bid, which includes $35 a share in cash.

The definitive agreement, which includes assumption of about $3.5 billion of ITT debt, has a transaction value of about $13.3 billion. Hilton's offer totals $11.5 billion.

Starwood is the nation's largest hotel real estate investment trust, or REIT. The combination would create the world's largest luxury hotel company, with 650 hotels in 70 countries either owned or under management.

The merger would wed ITT's Sheraton and Caesars World hotels with Starwood's Westin and Ritz chains. Starwood once owned the Bourbon Street hotel-casino on Flamingo Road and the King 8 on Tropicana Avenue.

The agreement, signed late Sunday after a marathon 48-hour negotiating session involving ITT and Starwood executives, comes just three weeks before the Nov. 12 annual meeting at which ITT shareholders were to vote on the Hilton offer.

It also comes just three weeks after ITT's stunning defeat in federal court in Nevada. On Sept. 29, U.S. District Judge Philip Pro ruled that ITT couldn't go ahead with its prior anti-Hilton plan to split into three companies without shareholder approval.

ITT said it would proceed with the Nov. 12 meeting, then schedule a special meeting for February or March so shareholders could vote on the Starwood deal.

The hastily negotiated deal apparently contains escape clauses for Starwood, as the announcement said that "under certain circumstances" the company may receive a termination fee and reimbursement of expenses.

"I'm not going to say there's no way they can back out," ITT Vice President Jim Gallagher acknowledged today. "But they've done their due diligence and we have signed a definitive agreement."

A Starwood spokesman couldn't be reached for comment.

Hilton Senior Vice President Marc Grossman said, "Until we have an opportunity to review this more closely, we really don't have a comment."

Hilton President Steve Bollenbach previously said the company wouldn't bid more than $70 a share for ITT.

While a new suitor for ITT wasn't unexpected, Starwood's $82 a share bid was. ITT's own investment bankers have valued the company at $62-$64 a share, which made some analysts doubt an $80-plus bid would materialize.

Gallagher said preliminary talks with Starwood began about two weeks ago.

"We talked to three interested parties in total," he said. "While all were serious, two never reached the negotiation point.

"Friday, after the stock market close, our board gave management the approval to negotiate. They did for 48 straight hours and came up with a definitive agreement."

It calls for Starwood Chairman Barry Sternlicht to become chairman and ITT Chairman Rand Araskog one of four ITT-named directors of the combined companies. Other ITT employees face a more uncertain future.

"The contracts of people who elect to sever from the company will be honored," Gallagher said.

"Barry Sternlicht today acknowledged his company has grown tremendously and up to this point hasn't had a corporate staff in a position to handle a company this size. He's only got five corporate staff people today."

Gallagher said Starwood was willing to pay $82 a share because "this is a mammoth deal for these guys."

"They have strength in Asia and the Pacific region, and this will make them the No. 1 hotel company in every geographical area except North America," where Marriott holds the dominant position.

ITT stock jumped to $75.12, up $4.75 a share, in early trading on the New York Stock Exchange today. Hilton was at $23.50, up 12 cents, while Starwood rose 25 cents to $56.75.