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August 2, 2014

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Hilton, Grand shareholders approve spinoff, merger

As expected, Hilton Hotels Corp. shareholders overwhelmingly approved a split of their company into separate gaming and lodging businesses Tuesday.

And, as expected, Grand Casinos Inc. shareholders approved a merger of their company into the gaming spinoff of Hilton, Park Place Entertainment Inc.

The new publicly traded entity will become the world's largest gaming company, with $2.7 billion in annual revenue from 18 gaming properties in the nation's three top gambling markets -- Nevada, New Jersey and Mississippi.

But the Grand vote was a lot closer than many had forecast, as disgruntled minority shareholders unhappy with the price Hilton had offered managed to get about 40 percent of the votes in their attempt to veto the deal.

The final tally showed Grand's insiders and big institutional investors holding about 60 percent of the company's 42.3 million outstanding shares voting in favor of the deal, Grand spokeswoman Jaye Snyder said.

Expected to be completed by year-end, the deals call for Hilton's current shareholders to receive one share of Park Place for each Hilton share owned. That would give them equal ownership in the two surviving companies, though their Park Place stakes will be diluted once the Grand merger is completed.

Grand will conduct a similar tax-free spinoff to its own shareholders, giving them one share of Lakes Gaming Corp. for each four Grand shares held. Lakes' assets will include management contracts at three Indian casinos in Minnesota and Louisiana, about $33 million in cash and a bit more than 10 undeveloped acres near the Polo Tower in Las Vegas.

After the spinoffs, Park Place will acquire Grand, giving its holders just under one share of its stock for each share of Grand. In the merger, Park Place will get three wholly owned Grand casinos in Mississippi, and Grand's current shareholders will get about 13.6 percent of the stock in Park Place.

Park Place will also assume about $550 million of Grand debt. It said Tuesday it is extending its offer to buy about $460 million of Grand's outstanding first-mortgage notes until Dec. 21 from Dec. 9. As of Tuesday, about $307 million of the notes had been tendered.

Some analysts expect Park Place shares to begin trading on the New York Stock Exchange next year at a range of $6 to $9 and Lakes at $2 to $3. Others predict the prices will be higher. Grand shares closed Tuesday at $9.25, unchanged, before the vote was announced.

Under the merger agreement negotiated last May, Hilton could have cancelled the deal because Grand's net equity value has fallen below $585.1 million, to less than $300 million as of Tuesday.

But Hilton executives, who will receive potentially lucrative stock options as part of the deals, said the transactions will benefit shareholders of both companies.

Shareholders of Hilton, which will rank as the third-largest U.S. hotel company, should benefit from the higher price multiples Wall Street gives the lodging business, they said. Hilton also will be better positioned to make selective acquisitions in the hotel industry.

Park Place will have geographic diversification that should enable it to weather economic downturns in specific locations, such as Las Vegas and Reno, that are suffering from overcapacity.

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