Hilton Makes Bid for ITT| Hilton Makes Bid for ITT |
(FOOL CONFERENCE CALL SYNOPSIS)* Washington, DC., February 4, 1997 / FOOLWIRE/ -- On January 27, 1996, Hilton Hotels announced a $10.5 billion offer to buy ITT Corp., which operates and franchises Sheraton Hotels and three Caesar's World Hotels/casinos. The company held on the following day a conference call to explain to investors the terms and thinking behind the move. Speaking on the call were Stephen Bollenbach, President and CEO of Hilton along with the company's CFO; Arthur M. Goldberg, President of gaming operations; and Hilton's corporate controller. STRATEGIC RATIONALE. The offer to ITT is consistent with the company's overall goal of "using the credit markets to acquire hotel real estate and to participate in the consolidation of the gaming business." The company has four "value drivers:" 1. Its use of the credit market and its credit condition, 2. Hotel acquisitions, 3. Consolidation of the gaming industry, and 4. Expansion and use of the Hilton brand. The company intends to develop the Hilton brand and allow franchisor HFS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HFS)") else Response.Write("(NYSE: HFS)") end if %> to add value to the Sheraton name. CREDIT QUALITY. The deal is approximately half cash and half stock. Hilton believes it can achieve cost savings of at least $100 million. Other credit quality factors include the monetization of the HFS component of the deal, the assumed sale the company's ALCATEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %> stock, the sale of the educational services stock at market value, and monetization of the CABLEVISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CVC)") else Response.Write("(AMEX: CVC)") end if %> note. No immediately made regarding Madison Square Garden. The combined company would have "well in excess of four times" interest expense coverage. The company met with the debt ratings agencies and its bankers before announcing the tender offer and expects that the ratings agencies will continue with an investment-grade rating on Hilton. ACCRETION TO EARNINGS. The equity portion of the purchase price is $6.5 billion. Adding ITT debt of $4.2 billion, deducting cash of $200 million, and $1.2 billion from the proceeds of the sale of assets yields an enterprise value of $9.5 billion. ITT's tangible net worth is $1.7 billion. The $4.8 billion difference between the equity purchase price and the tangible net worth will be assigned approximately half to long-term depreciable assets and half to goodwill. Adding incremental increases in goodwill and amortization expense and deducting cost savings and lower capital expenditures, Hilton believes this will be an accretive deal in 1997 and a "significantly accretive deal in 1998." QUESTION AND ANSWER SESSION. Hilton believe it can find some areas for savings in the expansion plans of ITT in Atlantic City and Las Vegas, either because the combined company would obviate some of some of the planned expansion or that they're not the right strategic moves. Hilton hasn't spoken with Planet Hollywood about the deal. Some of the overseas Sheratons will be converted to Hiltons and that the deal would be positive in its impact on international partners. On the legwork portion of dealing with regulatory approvals, etc., the company doesn't expect that to take any longer than it did with the Bally acquisition. Regarding some of the non-core businesses, the company plans to concentrate on hotels and gaming and would seek a fair value for the assets not related to those businesses. Following the merger, the company would have 390-400 million shares outstanding, depending upon the purchase price. "The credit markets are as open and friendly as they've ever been." The company will have a number of vehicles and maturity options to select from on the debt side of the deal. The company has $1 billion of shelf-registration bonds outstanding at the moment. Capital expenditures necessary for conversion of properties to Hilton would be "nominal." The deal gives the company "great concentration" in Las Vegas with the Hilton, Bally, Flamingo, and Caesar's names. With that comes a good deal of cost savings. 75% of ITT's cash flow comes out of owned properties. The company has 72 owned properties, 50 of which are in the US. The company plans on maintaining brand presence for Sheraton in cities where the two overlap. Working on the two brands with HFS, the company believes "its piece of the ups will probably be worth more than we would have if we kept it all ourselves." The agreement with HFS would be a very long term agreement. The company is positive about the immediate availability of financing to do the deal. The Cablevision note is a $160 million note and doesn't represent ITT's interest in Madison Square Garden.
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