Mm 5007 Financial Management

MM 5007 Financial Management

EMBA 57 B

The Hilton-ITT Wars

CASE #9

SYNDICATE 10

Aryo Bangundityo

29117105

Jemmy Septianus Nugraha

29117077

Tia Shabrina

29117200

Yunita Kusumadewi

29117148

Executive Summary

Hilton Hotel Corporation is the 7th largest hotel in the world and ITT Corporation is one of the largest hotels in the world and gaming company. Hilton wants to acquire the ITT corporation, the company has submitted the offer value. But the value offered is processed by ITT corporation. ITT had a strong "poison-pill" antitakeover and he postponed the planned annual meeting which will change the board director's arrangement. Suddenly ITT Corporation announced a structural change on the proposal, they developed a "trivestiture" proposal, which divides tax-free into 3 independent companies. Matthew J. Hart, chief financial officer of Hitlon company needs to re-evaluate the target nine stock offerings and estimate based on intrinsic value. If ITT Corporation defends the price offered, then it is better that Hilton release the deal. Because the trivestiture policy proposed by ITT is detrimental to the parties involved.

Case Overview

Matthew J. Hart, chief financial officer of Hitlon company needs to re-evaluate the value of the target stock offering. This is related to structural changes made by ITT Corporation. In addition to the ITT Corporation tax-free changes, ITT Corporation notified the reason for the rejection of a given price offer. ITT COrporation says Hilton's offer is not worth the true value. Therefore, Hart needs to reevaluate the target nine stock offerings and estimate based on intrinsic value. Evaluates the bids for target shares based on the intrinsic target value estimates. In addition to modeling the decisions of investors and ensuring that the next offer will force the ITT board of directors to accept the hilton offer

Key Issues

In this case, we will discuss some points, namely:

1. The reason why Bollenbach has opened its offer for ITT for $ 55 per share and its strategy

2. The reason why Bollenbach did not raise the offer between January and July

3. Stand alone ITT equity value, comparison of market history value, ITT break up value and ITT's value to Hilton

4. Expectation of equity price from if bid is rejected, whether to collapse or stable for trade value and whether ITT buyback price of $ 70

5. The implications of the EVNT analysis in determining the next bid, on what bids will the arbitrage risk be to tender their shares to Hilton and how much do they expect from the new offer?

6. What reaction should dBollenbach do with respect to ITT's trivestiture defenses, Whether it needs to bid or leave

Analysis

The reason why Bollenbach has opened its offer for ITT for $ 55 per share and its strategy

The $55 value is on the lower range of the analyst eztimates, with a best guess estimate of $67.94. Since the value of the stock had been below $45 for 4 months, the offer of 55 dollars represented a 29% premium to investors. Bollenbach knew that management would be resistant of any attempt to be acquired, regardless of price, because of failed previous attempts to negotiate a friendly merger at year end 1996. The 55 dollar benchmark created an expectation for ITT management to achieve that level, or higher and the premium is enough to demonstrate to investors it is a real offer. Their support will be key as they will have a vote deciding the fate of the poison pill provisions which need to be removed to make the deal necessary.

As the deal moves forward, Hilton has a great deal of room for negotiation with investors because their best guess value of ITT's operations is sill 20% higher than their initial bid. By beginning with a low bid, Hilton may risk another competitor entering into the bidding, but their market analysis shows no such competition for such a large deal. Because Hilton still has the ability to offer a higher bid later, and has a 5% stake in the business which would benefit from such competition, Hilton low bid says they are not afraid of such a situation.

Original offer was well received on Wall Street, but not by the entrenched ITT management. In an unlikely scenario, the bidding company stock price actually went up 10 percent since this acquisition made so much sense for Hilton. The offer was made in January, when ITT stock price was around 43 dollars.

The reason why Bollenbach did not raise the offer between January and July

There were a number of issues to address after Hilton's February 12th offer was rejected. Bollenbach knew that the next steps would be critical or the deal to go through. As such it was necessary to first research the investors and arbiters to have better negotiation tactics when the time comes. The resistant board of directors had not changed in the mean time and would likely resist any offer, including the unlikely event of another contender entering bidding. If the price of the stock fell below the $55 range, or the Board of Directors changed Bollenback would likely aggressively negotiate with shareholders to close the deal as quickly as possible.

Stand alone ITT equity value, comparison of market history value, ITT break up value and ITT's value to Hilton.

ITT value has changed a lot over the recent events. Prior to any offer when ITT stock was trading at 43 dollars, the standalone value of its equity was 16.4 billion dollars. With the 55dollar offer to ITT, the company value went