The Hilton-Itt Wars
31 Pages Posted: 21 Oct 2008
This case provides a vehicle for discussing analytical approaches to understanding bidding strategies in a hostile tender offer setting. In 1997, Hilton Hotels Corporation offered to acquire ITT Corporation in an unsolicited tender offer. ITT resisted in several ways. At the date of the case (July 17, 1997), ITT announces a restructuring of the firm aimed at delivering about $70 a share to its shareholders. The task for the student is to understand why Hilton's takeover attempt has failed thus far, and what the possible responses might be at this stage. The case contains a completed valuation analysis of ITT (prepared by the casewriter), which suggests that ITT is worth, at most, $89 a share to Hilton. In preparing a possibly higher bid for the firm, the student must weigh the probability of another bidder's entering the fray and that competitor's bid price. The instructor can use this setting to compare the target shareholders' outlook with the classic "prisoner's dilemma" and to discuss the expected value of not tendering--both concepts are important in devising a bidding response.
THE HILTON-ITT WARS
Professor William Z. Ripley of Harvard, the leading authority on corporations in the 1920s, warned President Calvin Coolidge that “prestidigitation, double-shuffling, honey-fugling, hornswoggling, and skulduggery” were threatening the entire economic system. Plus ça change, plus c'est la même chose.
—Rand V. Araskog, CEO of ITT
Surprised by the announcement of ITT Corporation's (ITT) restructuring proposal, on July 17, 1997, Matthew J. Hart, the chief financial officer of Hilton Hotels Corporation (Hilton), reviewed the valuation analysis of ITT (see the Appendix) and pondered the next step in his firm's hostile tender-offer contest for ITT. Hilton had commenced the tender offer on January 27, 1997. The financial community had responded favorably, but ITT's management had resisted firmly, selling assets and even refusing to call an annual meeting. Because ITT had a strong “poison-pill” antitakeover defense in place, it would be necessary to replace ITT's board and for that board to rescind the poison-pill defense before Hilton could consummate its purchase of ITT. But ITT had delayed calling an annual meeting at which a new board could be elected. In the six months since the initial Hilton offer, ITT had developed its “trivestiture” proposal, which it hoped would successfully fend off Hilton.
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Keywords: decision analysis, mergers acquisitions, probability analysis, valuation
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The Hilton-Itt Wars
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