Hilton breakup proceeding

Friday, Oct. 2, 1998 | 11:50 a.m.

CARSON CITY -- Hilton Hotels Corp. gained preliminary approval from the state Thursday to take the first steps towards splitting its lodging and gaming business into two companies and to acquire three casinos in Mississippi.

The state Gaming Control Board recommended approval of the application after being told by Hilton officials the restructuring and purchase hopefully will be completed by the end of the year.

Hilton General Counsel Tom Gallagher said this initial move puts the various properties in the right position so the spin-off can occur later.

"This is step one of a 20-step process," Gallagher said.

After Hilton is divided into two companies, the gaming corporation will buy the three casinos in Mississippi that belong to Grand Casinos in a $1.2 billion deal.

Gallagher was questioned by Board Chairman Steve DuCharme about its troubles in Kansas City. There was a federal investigation of allegations that a former Hilton employee may have offered a $225,000 bribe to an official in Missouri to obtain a prime location for a casino.

He told the board the company cooperated fully with federal prosecutors and there was no evidence of any Hilton employee being involved in a crime.

To avoid a protracted case at a time when the company was going before licensing bodies in several states, Gallagher said the casino agreed to a "diversion agreement" in which it is made clear there was no finding of guilt on the part of the Hilton.

The corporation paid a $500,000 fine plus $155,000 to the U.S. Justice Department to cover costs of the case.

DuCharme said the settlement agreement acknowledged that no current employee of Hilton was involved but it does not say if former employees were involved.

In the move to separate the casinos and the lodging businesses, Gallagher said proxies will be mailed out in the middle to the end of October and a shareholders' meeting will be held 30 days after that to approve the breakup.

Hilton, based in Beverly Hills, Calif., owns and franchises about 240 mostly upscale hotels. In Las Vegas it owns the Las Vegas Hilton, the Flamingo Hilton and Bally's and is building the Paris hotel-casino, right across the street on the Strip from the Bellagio. The Paris hotel is to open next year.

While Grand Casinos is selling off its clubs in Biloxi, Tunica and Gulfport in Mississippi, it is retaining its management of casinos on Indian lands in Minnesota and Louisiana, and its ownership on some undeveloped land on the Las Vegas Strip.

Hilton is still waiting for approval from the Internal Revenue Service that its plans will be tax free. Larry Stein, a tax expert, said he expects that to come in November.

Not part of the shuffle is the Windsor hotel-casino in Ontario, Canada, which is owned by the government but managed by Hilton and Caesar's, Gallagher said.

The state Gaming Commission will meet Oct. 22 in Carson City to take final action on the Hilton split.

Gallagher said that after the shareholders vote, Hilton will be back before state gaming regulators for approval of the full change, probably in November or December. He said the name of the new corporation has not been disclosed.