NEW YORK – ITT Corp.’s entertainment assets, which include a half-interest in Madison Square Garden and Gotham TV station WBIS+ are likely to be sold if a $6.5 billion hostile bid for the gaming conglomerate, launched late Monday by Hilton Hotels Corp., succeeds.
And Wall Streeters say Hilton’s bid, made by one-time Walt Disney CFO Stephen Bollenbach who is now Hilton CEO, may very well be accepted. ITT’s entire board is up for re-election this spring, which will make the directors more conscious of their responsibilities to shareholders, one trader noted Monday. ITT did not return calls seeking comment.
But Hilton will likely have to raise its price, analysts say. Hilton is offering $55 a share, $11 a share higher than ITT’s closing price Monday (the market closed before the bid was announced). Cowen & Co. analyst Harold Vogel says ITT is worth $60-$65 a share. Wall Street traders predict the stock will jump to $57 in trading today.
By combining ITT’s Sheraton hotel chain and 14 casinos with Hilton, the deal would create a hotel and casino behemoth. But it would almost certainly end ITT’s plan to become a presence in the entertainment industry. In a statement Monday, Hilton said the entertainment businesses “would be carefully reviewed as to their long-term strategic fit with the combined company.”
And Bollenbach added immediately after this line in the statement that “through the monetization of nonstrategic assets and a focus on the company’s core business line, we will create even more value.” Hilton said its execs would answer questions during a conference call today.
Even if Hilton doesn’t win, the bid may prompt the sale of the entertainment assets anyway. ITT could try to fight the bid by announcing sales of non-core assets, like the entertainment businesses, to reduce its $4.2 billion in debt. Or another bidder could come in to compete with Hilton, investment bankers said.
ITT and Cablevision Systems acquired Madison Square Garden, including its sports cable network and the Knicks and Rangers sports teams, for just over $1 billion in 1994. ITT also owns 50% of WBIS+, along with Dow Jones & Co. Vogel estimates ITT’s total investment in entertainment is a little over $600 million, and he predicted ITT could make money on the two deals if it sold.
News Corp., which is looking to expand its cable sports holdings, may try to acquire the cable nets. News Corp. has tried unsuccessfully in the past to bring Cablevision on board with regards to cable sports programming.
Vogel said it was hard to know whether the bid would succeed. He argued that ITT had not seen the benefits of a renewed focus on gaming begun in the past couple of years, after ITT split itself into three companies. Gaming and entertainment were kept in the core company in the split-up.
Vogel said ITT’s gaming cash flow, likely to be $320 million in 1996, would rise to $500 million in 1998. But he noted that investors had been disillusioned with the growth rate.
Hilton noted in its statement that ITT’s returns to shareholders “have been disappointing” since the spinoff in 1995. Bollenbach said a merger of the two companies would save more than $100 million annually. It added that ITT’s plan to spend $3 billion on capital expenditure and expansion wouldn’t be necessary if the two companies were put together.