Hilton gives up on ITT
Bloomberg NewsBEVERLY HILLS, Calif. -- Hilton Hotels Corp. today said it won't raise its offer for ITT Corp., which agreed to be bought by Starwood Lodging Trust for $13.3 billion. Hilton will put its offer of $70 a share, or $11.5 billion, before ITT's shareholders in the chance that Starwood's stock might falter by the Nov. 12 annual meeting. Yesterday, Starwood agreed to pay $82 a share for the owner of Sheraton hotels and Caesars casinos.
Some shareholders and analysts said Hilton doesn't need ITT, pointing to a 74 percent jump in third-quarter earnings as it filled more hotel rooms and raised prices. And Chief Executive Stephen Bollenbach said the company already has some hotel purchases in the works.
"Chasing after ITT at any price wouldn't be good for shareholders," said Peter Marron, senior vice president at Pinnacle Associates, which owns about 233,000 Hilton shares.
Starwood's main advantage over Hilton is a structure that, like most real estate investment trusts, allows it to shelter some income from corporate taxes. Starwood is one of four REITs paired with another company that can also operate other kinds of businesses such as hotels, which traditional REITs cannot do.
"The reality is the market loves the deal that's presented by Starwood," Bollenbach said. "We'll take it to the shareholder meeting. Maybe the market will wizen up by then."
The shares of Starwood and similar "paired-share" REITs trade at a higher multiple over cash flow than traditional hotel companies such as Hilton -- giving Starwood a strong currency to use in acquisitions. Phoenix-based Starwood and other REITs have been paying about 13 times cash flow in its purchases, while Hilton limits its to about 8.5 times, Bollenbach said.
"As long as they're prepared to pay those kinds of prices, they'll beat us every single time," he said.
New York-based ITT couldn't be reached for comment.
Losing its nine-month pursuit of ITT won't prove devastating to Beverly Hills, Calif.-based Hilton, analysts say. Its hotels will continue to benefit from strong demand for rooms and rising rates, while its casinos will gain from a steady flow of gamblers.
Moreover, Bollenbach may become even more aggressive in buying hotels and casinos, analysts say. The company will likely focus on individual hotels because consolidation in the industry over the past year has resulted in fewer large groups.
Meanwhile, Hilton said net income rose to $94 million, or 36 cents a share, from $54 million, or 28 cents, a year earlier. The results matched expectations. In the third quarter, revenue rose 39 percent to $1.31 billion from $943 million.
