ITT and Hilton
discuss merger

The negotiations come after
Hilton raises its long-running hostile bid

Associated Press

NEW YORK -- ITT Corp., saying Hilton Hotels Corp. finally made a takeover bid worth discussing, is talking with the suitor about a possible merger for the first time after months of spurning its overtures.

The companies began discussions yesterday, a day after Hilton raised its long-running hostile bid in an attempt to upset ITT's friendly pact with Starwood Lodging.

"Hilton finally put a bid on the table that's respectable," said ITT spokesman Jim Gallagher.

Gallagher said ITT's agreement with Starwood still stands, but its board is scheduled to meet today to consider Hilton's new offer.

"It was important to us to understand exactly what they're offering," Gallagher said. "We're in an auction process here and there are now two bidders."

Hilton revealed the talks in a regulatory filing yesterday but said the discussions did not insure that a deal would be reached.

Hilton raised its bid a second time to $10 billion, or $80 a share in cash and stock, on Monday -- just two weeks after saying it would not offer more. Hilton said it raised the bid from $70 a share after learning more details about the value of some ITT assets in regulatory filings related to the Starwood deal.

While still below the Starwood deal reached last month -- worth $10.25 billion, or $82 a share in cash and stock -- Hilton said its offer is better for ITT shareholders because it contains $3.3 billion more cash than Starwood's offer and is not as susceptible to stock market drops.

ITT shareholders are scheduled to meet next Wednesday to vote on Hilton's bid, which it has pursued since ITT rejected an initial $6.5 billion offer in February.

(In Hawaii, ITT's Sheraton manages eight hotels with 5,970 rooms; Hilton manages three hotels.

Hilton also owns half the 2,500-room Hilton Hawaiian Village, is part owner of Hilton Waikoloa Village on the Big Island and has a management contract for Turtle Bay Hilton Golf & Tennis Resort on Oahu.)

Earlier yesterday, Starwood chairman Barry Sternlicht said in an interview on CNBC that the company could raise its offer and other parties are interested in joining the bid.

A spokeswoman for Phoenix-based Starwood, the nation's largest real estate investment trust, said she could not elaborate on those remarks. Starwood officials were not available for comment later on the Hilton-ITT talks.

Sternlicht told CNBC he still considers Starwood's offer superior to Hilton's new bid.