Starwood Adds More Dollars to Its Bid for ITT

Starwood Lodging Trust on Friday raised its offer for ITT Corp. to $85 a share and added more cash, hoping to sway investors ahead of Wednesday’s showdown with rival suitor Hilton Hotels Corp.

The real estate investment trust will give ITT shareholders a choice of all stock or as much as $25.50 a share in cash, up from $15. The increased amount of cash is crucial because some investors favor Hilton’s offer of $80 a share, of which $44 is cash.

Starwood Chairman Barry Sternlicht said he’s trying to appeal to institutional holders who like his stock, which has nearly doubled in a year, and arbitragers who want cash. That gives Phoenix-based Starwood an edge for now, investors and analysts said.

Although Starwood struck a definitive agreement with ITT in October, the partnership grew uncertain earlier this week when ITT said it was still open to the highest bid.

“It was a very clever move,” said Tom Burnett, founder of Merger Insight, an institutional research service. “You have the opportunity to select the alternative you prefer.”

ITT, which still has not formally responded to Hilton’s bid, said it will promptly evaluate the revised Starwood offer. But it also continued to court the two suitors, saying that Hilton was likely to raise its bid again.

Beverly Hills-based Hilton declined to comment on its plans.

Still, Starwood’s offer isn’t a knockout bid and is likely to spark higher offers before Wednesday’s vote by shareholders.

“It’s wonderful when companies go into an auction mode,” said Michael Price, chief executive of Franklin Mutual Fund Advisors, which owns about 2.5 million ITT shares and bought more Thursday. “We’re just letting them pound it out.”

ITT’s shares rose 69 cents to close at $80.31; Starwood’s shares fell $1 to close at $57.81; and Hilton’s shares fell 13 cents to close at $31.50. All trade on the New York Stock Exchange.

Starwood’s offer totals $13.7 billion when ITT’s $3.5 billion in debt is included; it agreed Oct. 20 to pay $82 a share, with $15 in cash and $67 in stock. Hilton’s offer is valued at $12.8 billion.

The winner of New York-based ITT, which operates Sheraton hotels and Caesars World casinos, will be the world’s largest hotelier.

Starwood’s new offer would give ITT investors as much as 30% cash. If enough investors take just stock, others will be able to receive even more cash.

Sternlicht said institutions owning about 20% of ITT have indicated they prefer stock.

Fidelity Investments, though, said it has reached no agreement or understanding on how it will vote its shares, said Scott Beyerl, a Fidelity spokesman.

At the same time, at least a quarter of ITT’s stock is held by arbitragers, who buy shares of takeover targets and aren’t as keen on the prospects for the companies.

“The revised offer clearly puts us way ahead of Hilton on all counts,” Sternlicht said.

Shareholders will vote on whether to reelect ITT’s board, which says it wants to continue auctioning the company, or directors proposed by Hilton who would support its bid.