Hilton Unbowed by Defeat

After losing a bitter, nearly 10-month-long fight to take over ITT Corp., Hilton Hotels Corp. remains a formidable player in the hotel and casino gaming business but will face higher prices and intense competition as it hunts for other acquisitions, said industry analysts.

Hilton Chief Executive Stephen Bollenbach on Wednesday raised the white flag on his hostile, $9.3-billion offer after losing a nasty proxy fight for control of ITT’s board of directors. Instead, ITT shareholders reelected their current board, which had earlier approved a rival $10-billion bid by Starwood Lodging Trust.

“It leaves [Hilton] an incredibly well-capitalized company with great opportunities,” said Andrew Zarnett, a lodging industry analyst at the firm Ladenburg Thallman.

In a New York news conference held after the ITT shareholders meeting, Bollenbach said that Hilton would continue to generate impressive financial results in the years ahead and look for other hotels to buy. The 55-year-old executive denied that the defeat was emotionally wrenching, despite trading sharp barbs with ITT Chairman Rand Araskog during the corporate feud.

“I’ve been in this business 35 years,” he said. “I think I read that I always win, but really, I usually lose.”

Hilton will continue doing what it has been doing--picking up properties one at a time where it spots good value--instead of buying entire hotel companies, Bollenbach said. Such companies and their popularity are too expensive. “We can’t afford to pay for a brand name just to get at the real estate.”

On the casino gaming side, Bollenbach said, “I don’t think prices are particularly attractive” now.

Industry analysts said Hilton was well-advised not to raise its $80-a-share bid. Many industry observers were concerned that Bollenbach would pay too much for New York-based ITT, to the point where it could undermine Hilton’s financial health.

“I think the [offers] that were out there were quite adequate,” said John J. Rohs at Schroder & Co. “I think that anything beyond that point would have represented a real stretch.”

Hilton might have made a strategic mistake by not making a “knockout bid” when it launched its takeover fight in January, said Harold Vogel, a hotel industry analyst at Cowen & Co. Bollenbach “really lost the battle the day he started it,” he said.

It will be difficult for Beverly Hills-based Hilton to find a match for the benefits and cost savings it would have reaped through a merger with ITT, which owns the Sheraton hotel chain and Caesars Palace in Las Vegas. “There is no company that fits so well with ITT as we do,” Bollenbach said in an interview with The Times earlier this year.

In addition, Hilton will continue to face competition and higher prices as it searches for properties to acquire. Hotel values have risen in response to a wave of merger and acquisition activity in the industry and strong increases in room and occupancy rates. About $24 billion in hotel properties will change hands this year, industry estimates indicate.

The combination of Sheraton and Phoenix-based Starwood, which has also agreed to acquire the Westin hotel chain, will create a formidable new competitor for Hilton and other players in the full-service hotel market. An ITT--Starwood merger, expected to be completed early next year, would create a lodging company with about $10 billion in revenue and 650 hotels in 70 nations.

The loss is also not expected to cause much damage to Bollenbach’s stature as an outstanding corporate strategist. The fact that Bollenbach limited his bid to avoid diluting his company’s earnings will boost his popularity among Hilton shareholders and the investment community, said analysts.