Harvard Case - The Hilton-ITT Wars
"The Hilton-ITT Wars" Harvard business case study is written by Robert F. Bruner, Sean Carr, Sanjay Vakharia. It deals with the challenges in the field of Finance. The case study is 32 page(s) long and it was first published on : Apr 21, 1998
At Fern Fort University, we recommend that Hilton Hotels Corporation should pursue a strategic acquisition of ITT Corporation. This will allow Hilton to gain control of Sheraton Hotels, a major competitor, and expand its presence in the global hospitality industry. The acquisition will also provide Hilton with access to ITT's other valuable assets, including its insurance and financial services businesses.
2. Background
The case study focuses on the fierce battle for control of ITT Corporation, a diversified conglomerate with a significant presence in the hospitality industry through its Sheraton Hotels chain. In 1985, ITT became a target for a hostile takeover by Hilton Hotels Corporation, led by its ambitious CEO, Barron Hilton. This move was motivated by Hilton's desire to expand its market share and challenge the dominance of Marriott in the hotel industry.
The main protagonists of the case are:
- Barron Hilton: CEO of Hilton Hotels Corporation, driving the acquisition strategy.
- Rand Araskog: CEO of ITT Corporation, determined to defend the company from the takeover.
- Harold Simmons: A wealthy investor who joined forces with Hilton in the takeover attempt.
- The ITT Board of Directors: Facing pressure from both Hilton and Araskog, they had to make a crucial decision regarding the future of the company.
3. Analysis of the Case Study
The case study can be analyzed through the lens of Mergers and Acquisitions (M&A) strategy. This framework helps understand the motivations, challenges, and potential outcomes of the takeover attempt.
Hilton's perspective:
- Strategic Rationale: Hilton saw the acquisition as a way to gain market share, achieve economies of scale, and improve its competitive position against Marriott.
- Financial Analysis: Hilton conducted a thorough financial analysis of ITT, evaluating its assets, profitability, and potential for synergy. They identified the value of Sheraton Hotels and other assets that could be leveraged.
- Valuation Methods: Hilton employed various valuation methods, including discounted cash flow analysis, comparable company analysis, and precedent transactions, to determine a fair price for ITT.
- Financing Strategy: Hilton secured financing from various sources, including debt financing and private equity, to fund the acquisition.
ITT's perspective:
- Defense Strategies: ITT employed various defense tactics to fend off Hilton's takeover attempt, including a poison pill, a white knight strategy, and a lawsuit against Hilton.
- Financial Analysis: ITT conducted its own financial analysis to assess the potential impact of the acquisition on its business and shareholder value.
- Negotiation Strategies: ITT engaged in complex negotiations with Hilton, seeking to maximize its leverage and protect its interests.
External Factors:
- Economic Forecasting: The economic climate played a role in the takeover attempt, as the hotel industry was experiencing growth and consolidation.
- Government Policy and Regulation: Antitrust regulations and other legal considerations influenced the acquisition process.
4. Recommendations
Based on the analysis, we recommend that Hilton Hotels Corporation should proceed with the acquisition of ITT Corporation. The following steps should be taken:
- Negotiate a mutually acceptable deal: Hilton should continue negotiating with ITT, focusing on a fair price that reflects the value of Sheraton Hotels and other assets.
- Secure financing: Hilton should finalize its financing arrangements, ensuring sufficient funds to complete the acquisition.
- Develop an integration plan: Hilton should develop a comprehensive integration plan, outlining how it will combine Sheraton Hotels with its existing operations and manage potential conflicts.
- Address regulatory concerns: Hilton should proactively address potential antitrust issues and other regulatory concerns to ensure a smooth acquisition process.
5. Basis of Recommendations
The recommendation to acquire ITT is based on the following considerations:
- Core competencies and consistency with mission: The acquisition aligns with Hilton's core competencies in the hospitality industry and its mission to expand its global presence.
- External customers and internal clients: The acquisition will benefit Hilton's customers by providing access to a wider range of hotels and services. It will also create opportunities for Hilton's employees.
- Competitors: The acquisition will significantly enhance Hilton's competitive position by giving it control of Sheraton Hotels, a major competitor.
- Attractiveness ' quantitative measures: The financial analysis conducted by Hilton indicates that the acquisition is financially attractive, with significant potential for synergy and value creation.
6. Conclusion
The acquisition of ITT Corporation represents a strategic opportunity for Hilton Hotels Corporation to expand its market share, achieve economies of scale, and enhance its competitive position in the global hospitality industry. While there are challenges and risks associated with the acquisition, the potential benefits outweigh the drawbacks, making it a worthwhile endeavor.
7. Discussion
Alternatives not selected:
- Abandoning the acquisition: This would have left Hilton in its current position, without the benefits of acquiring Sheraton Hotels.
- Focusing on organic growth: This would have been a slower and more gradual approach to expanding Hilton's market share.
Risks and key assumptions:
- Integration challenges: Integrating Sheraton Hotels with Hilton's existing operations could be complex and time-consuming.
- Antitrust concerns: Regulatory scrutiny could delay or prevent the acquisition.
- Economic downturn: A downturn in the economy could negatively impact the hotel industry and the value of the acquisition.
8. Next Steps
- Negotiate and finalize the acquisition agreement: Within the next 3 months.
- Secure financing and obtain regulatory approvals: Within 6 months.
- Implement the integration plan: Within 12 months.
- Monitor the performance of the combined company: Ongoing.
By taking these steps, Hilton can successfully acquire ITT Corporation and create a leading global hospitality company.
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Case Description
This case provides a vehicle for discussing analytical approaches to understanding bidding strategies in a hostile tender offer setting. In 1997, Hilton Hotels Corporation offered to acquire ITT Corporation in an unsolicited tender offer. ITT resisted in several ways. At the date of the case (July 17, 1997), ITT announces a restructuring of the firm aimed at delivering about $70 a share to its shareholders. The task for the student is to understand why Hilton's takeover attempt has failed thus far, and what the possible responses might be at this stage. The case contains a completed valuation analysis of ITT (prepared by the casewriter), which suggests that ITT is worth, at most, $89 a share to Hilton. In preparing a possibly higher bid for the firm, the student must weigh the probability of another bidder's entering the fray and that competitor's bid price. The instructor can use this setting to compare the target shareholders' outlook with the classic "prisoner's dilemma" and to discuss the expected value of not tendering--both concepts are important in devising a bidding response.
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