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ITT Ordered to Seek Stockholders' OK

Hotels: The company's breakup plan to fend off Hilton's hostile takeover bid violates responsibility to investors, judge rules.

September 30, 1997| From Times Staff and Wire Reports

A federal judge in Nevada ruled Monday that ITT Corp.--which owns Sheraton hotels and Caesars Palace in Las Vegas--must seek shareholder approval to split into three separate companies as part of a plan to thwart a hostile takeover by Hilton Hotels Corp.

The ruling is seen as a major victory for Beverly Hills-based Hilton and its president and chief executive officer, Stephen Bollenbach, who had threatened to drop a $11.5-billion bid for ITT if the breakup plan was successful.

U.S. District Judge Philip Pro in Las Vegas ruled that ITT was violating its responsibility to investors by denying them a vote. ITT, which is incorporated in Nevada, must hold its shareholder meeting by Nov. 14, the judge said. Shareholders will then be able to vote on the ITT proposal as well as Hilton's offer.

"Mr. Bollenbach must be one heck of a happy guy right now," said Andrew Zarnett, an industry analyst at the securities firm Ladenburg Thalmann. "It is so clear that the Hilton plan is far superior to the ITT plan."

Hilton, which operates its namesake hotels and Bally's casinos, in January offered to buy New York-based ITT for $55 a share, or $10.5 billion. In August, it raised the offer to $70 a share, or $11.5 billion, including assumed debt.

To stave off Hilton, ITT in July said it would separate its hotel and casino companies, technical-education schools and international telephone directories businesses; buy back a quarter of its shares at $70 apiece for $2.1 billion; and repurchase about half of its public debt for an additional $2 billion.

ITT had hoped to keep Hilton at bay by breaking up and creating a board whose directors are not all elected at the same time prior to its next shareholder meeting.

But Pro scuttled those plans. During the hearing, Pro said that ITT's decision denying shareholders a chance to vote "had as its prime purpose entrenchment of the current ITT board."

Bollenbach had been frustrated in most of his attempts to force ITT Chairman Rand Araskog to the negotiating table.

"We are pleased with the court's decision giving shareholders their rightful opportunity to control the fate of their company," Bollenbach said in a statement. "A Hilton-ITT combination will bring enormous benefits to the shareholders of both companies, and we look forward to meeting with ITT's senior management to work together to create the world's leading lodging and gaming company."

An ITT spokesman said the company respects the judge's decision and looks forward to the shareholder vote.

"We remain confident that ITT's plan provides greater shareholder value," spokesman Jim Gallagher said.

Analysts expect both companies to fiercely woo investors, who will deciding ITT's fate.

"If you think what we've seen is bloody, this will be an all-out nuclear war," said Bruce Turner, managing director of Salomon Bros.

Shares of ITT fell 50 cents to close at $62.50, and Hilton shares rose 50 cents to close at $32.13. Both trade on the New York Stock Exchange.

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