Hilton May Trim $10.5-Billion Offer for ITT

Hilton Hotels Corp. of Beverly Hills said Tuesday that it may cut its $10.5-billion offer to buy ITT Corp. if ITT sells some of its luxury Sheraton hotels.

“When they sell big hotels, does that dampen our interest? Sure, it does,” Hilton spokesman Marc Grossman said. He said Hilton would adjust its bid based on which hotels ITT sells.

ITT Corp. may sell as many as four of its luxury hotels, including the St. Regis in New York and the Phoenician in Arizona, for about $1.2 billion, the Wall Street Journal reported, citing people familiar with the talks.

The move diminishes the company’s value for Hilton, which in January launched a hostile takeover for $10.5 billion in equity and assumed debt, some investors said.

“If ITT gets rid of all these big- city hotels, I don’t think Hilton wants it,” said Erick Lucera, a fund manager at Independence Investment Associates, which owned 705,000 ITT shares and 3.2 million Hilton shares at the end of March.

ITT shares fell 25 cents to close at $59.625 on the New York Stock Exchange, with 906,400 shares changing hands, more than the three-month daily average. The stock has consistently traded at more than the $55 a share offered by Hilton.

Hilton shares fell 25 cents to close at $28.625 on the NYSE.

The proposed luxury hotel sale prompted at least one ITT investor to call on Hilton Chief Executive Stephen Bollenbach to increase Hilton’s offer. Analysts have said Hilton can afford to pay $65 a share without diluting earnings.

“There is too much space between his $55 offer and what is becoming the value of this company,” said Peter Schoenfeld, chairman of money manager PSAM and an ITT investor.

Until now, Hilton has applauded ITT’s efforts to sell more than $3 billion in non-core assets that Hilton would have sold if it acquired the company. ITT is likely to use the proceeds to buy back stock and boost its share price, analysts said.

Now, though, New York-based ITT is selling parts of its main business. Already, ITT has agreed to sell five upscale Sheraton hotels for $200 million and is looking for buyers for two of its small casinos.

“We are committed to doing what’s in the best interest of our shareholders,” ITT spokesman Jim Gallagher said.

Still, some investors questioned how selling the luxury hotels would help ITT shareholders. The sale of the hotels would include an agreement that lets the new owners terminate their contracts if ITT is acquired.

“I don’t see how it’s in the ITT shareholder’s interest to enter into a transaction like that,” said Mark Greenberg, a fund manager at Invesco Trust Co., which owned 3.22 million Hilton shares at the end of March and some ITT shares.