ITT shareholders
rebuff Hilton

They vote 2 to 1 to back
Starwood Lodging's bid

Bloomberg News

NEW YORK -- ITT Corp.'s shareholders backed Starwood Lodging Trust's $13.7 billion takeover bid, ending Hilton Hotel Corp.'s 10-month pursuit of the hotel and casino company.

ITT shareholders voted roughly 2-to-1 to re-elect the company's directors, rejecting Hilton's rival slate of directors and $12.8 billion offer. ITT Chairman Rand Araskog said the company remains up for sale, though Phoenix-based Starwood's $85-a-share offer will be hard to beat.

The combination of ITT's Sheraton hotels and Caesar's casinos with Starwood's soon-to-be purchased Westin Hotels gives Chairman Barry Sternlicht two of the best-known upscale hotel chains.

(In Hawaii, Sheraton manages eight hotels with about 5,970 rooms.)

The purchase also caps Starwood's emergence from a little-known real estate investment trust a year ago into the world's biggest hotel company.

"They've become a far more significant game in town," said John Rohs, an analyst at Schroder & Co.

The vote is bitter end to Hilton Chief Executive Stephen Bollenbach's quest. While the result is "disappointing," Hilton plans to boost earnings per share and cash flow 25 percent over the next four to five years, Bollenbach said.

Beverly Hills, Calif.-based Hilton faces an uphill battle without ITT because there aren't many large takeover candidates remaining, analysts said.

"Where's that going to come from?" asked Brad Cohen, an analyst at Sands Bros. & Co. "There's a credibility question with management."

Final tallies of the results could take weeks, but ITT said 65 million proxy votes were cast for ITT's board and 25 million for Hilton, according to a preliminary count from today's annual meeting.

ITT investors are betting that Starwood's mostly stock offer will be worth more than Hilton's cash-rich bid of $80 a share. Starwood's share price, which has jumped 82 percent the past year, and its growth prospects were deciding factors.

"The more attractive offer won," said Jamie Handwerker, an analyst with Furman Selz LLC.

With New York-based ITT, Starwood would have 650 hotels in 70 countries and annual revenue of more than $10 billion.

"This company could be potentially lethal," Sternlicht said. "Over time, this will be a company of champions."

He said he expects to complete the purchase by the end of January and that he doesn't see any other bids.

He said he will reassess ITT's casino operations in the next 18 months. "We are going to let these guys run their business," he said. "If they meet our expectations, we will all be a happy company."

Today's vote at ITT's St. Regis Hotel in New York ends a campaign for Hilton that began in January, when Bollenbach stunned ITT with a hostile bid of $10.5 billion, or $55 a share.