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THERE'S NOTHING LIKE a good, nasty election campaign to get the juices flowing. What a spectacle: candidates spending obscene amounts of money on ads and consultants, mounting vicious public attacks on each other, pandering to as many voters as they can reach. No, we're not talking about Republicans fighting Democrats, but Hilton Hotels' campaign to vote out ITT Corp.'s board of directors. Election day is Wednesday, Nov. 12, when ITT holders will gather for their long-delayed annual meeting and decide whether to keep the current directors in office or replace them with Hilton's slate. If Hilton wins, it almost surely winds up the proud new owner of ITT.
The campaign started in January, when Hilton, a hotel-casino company, launched a hostile bid for ITT, which is in the same businesses. It's sure been fun watching the corporate testosterone flow. Especially if you're an ITT stockholder and you've seen your stock almost double since January. Not much fun if you're an ITT employee, though. Hundreds have lost their jobs, and more will probably lose them, regardless of who wins the battle for ITT.
The election is very much in doubt. Late last week Hilton was offering $80 per ITT share in cash and stock. Starwood Lodging, the suitor that ITT is rooting for, was offering $85. Starwood's offer was considered by many analysts to be more attractive, but only slightly so. That's because Hilton is offering more cash (55 percent versus 30) and some price guarantees on the stock portion of its package. Starwood was offering no such guarantees. However, things will likely have changed by the time you read this--Hilton was expected to raise its bid by the end of Monday, and other bidders may emerge. For all the Sturm und Drang, this is a simple story. Put ITT chairman Rand Araskog and Hilton president Stephen Bollenbach in a barrel and roll them down a hill, and there will always be an egotist on top. Add to this Bollenbach's challenging Araskog's manhood by calling him a ""weenie'' and a ""superweenie'' and Araskog's dispatching his spokesman to say ""it'll be a cold day in hell'' before ITT negotiates with Bollenbach, and you see these guys don't like each other much.
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There's a certain poetic justice here. Araskog, who in 1989 wrote a book, ""The ITT Wars,'' in which he boasted about foiling raids on ITT, has acted as if ITT were his personal company. Self-indulgent moves such as buying professional sports teams hurt ITT's stock price so much the company became vulnerable. Even though he will get to unfurl a $55 million golden parachute, Araskog didn't want to give up his plaything and tried various ploys to fend off Hilton. Among them: selling the sports teams, postponing the stockholders' meeting and proposing a recapitalization plan that would have entrenched him in office without a shareholder vote. He also fired most of the headquarters staff to save money, but left his own pay intact. The sales didn't raise ITT's stock price enough to put the company out of Hilton's reach, and a judge ordered the meeting be held and killed the recapitalization. So Araskog agreed to sell ITT to Starwood, without letting Hilton bid. Araskog got a dynamite offer from Starwood--but made all sorts of concessions, including agreeing to pay Starwood more than $200 million if someone else ends up with ITT. ITT now boasts that it forced Hilton to raise its bid by $25 a share, or $3 billion. That's wonderful, but it's not as if that's what ITT set out to do.
ITT's directors now say they're auctioning off the company and holders should keep them in office so they can get the best price. ""If Hilton's candidates are elected, it would be the ultimate case of having the fox in the henhouse,'' ITT spokesman Jim Gallagher said. ""Their job is to deliver ITT to Hilton at the lowest possible price.''
Hilton argues that the bidding is a farce because Araskog won't let Hilton win. Among other things, argues Hilton spokesman Marc Grossman, Araskog resents losing the lavish lifestyle the ITT chairmanship has afforded him. ""Rand won't have anyone waiting for him with a rickshaw outside the St. Regis,'' Grossman said. The St. Regis, a swank Manhattan hotel, is one of ITT's prime properties.
Bollenbach says he'll walk away if Hilton doesn't win Wednesday's vote. But will he really? Bollenbach twice said that he wouldn't raise Hilton's offer, then raised it, saying things had changed. A good way to bargain--not a good way to inspire trust.
The point of this tale? Three things. First, ITT shows how perceptions can change. Pre-Hilton, ITT was considered your typical underachieving company. Now it's seen as a collection of valuable assets. Second, last month's market drop may have strengthened fear in the fear-vs.-greed equation. Starwood, whose stock is so high-priced it richly deserves its symbol, HOT, was the odds-on favorite until the market tanked. Since then, cold, hard, safe cash has new cachet. And third, while this has been an ugly spectacle, in the end ITT, which had been mismanaged, is going to get new managers. No one ever said that markets were pretty. They just work.
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