Hilton ITT Case Study Essay

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1. Why might Bollenbach have opened his bidding for ITT at $55 per share? What was his likely strategy?

The $55 value is on the lower range of the analyst eztimates, with a best guess estimate of $67.94. Since the value of the stock had been below $45 for 4 months, the offer of 55 dollars represented a 29% premium to investors. Bollenbach knew that management would be resistant of any attempt to be acquired, regardless of price, because of failed previous attempts to negotiate a friendly merger at year end 1996. The 55-dollar benchmark created an expectation for ITT management to achieve that level, or higher and the premium is enough to demonstrate to investors it is a real offer. Their support will be key as they will have a
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Bollenbach knew that the next steps would be critical or the deal to go through. As such it was necessary to first research the investors and arbiters to have better negotiation tactics when the time comes. The resistant board of directors had not changed in the mean time and would likely resist any offer, including the unlikely event of another contender entering bidding. If the price of the stock fell below the $55 range, or the Board of Directors changed Bollenback would likely aggressively negotiate with shareholders to close the deal as quickly as possible.

3. ITT’s value has changed a lot over the recent events. Prior to any offer when ITT’s stock was trading at 43 dollars, the stand-alone value of its equity was 16.4 billion dollars. With the 55-dollar offer to ITT, the company’s value went up to approximately 21 billion. After the offer, the stock was trading at $63.50, which gave the total equity a value of 24.2 billion dollars. With the proposed trivesture proposal, the company would lose synergistic value as three separate companies, compared to one large company. Examples of these include a number of overhead costs which gain economies of scale. In addition, ITT likely has synergistic revenues coming from the fact that it operates all three business segments. Analyst estimates indicate that the present value of the synergies whichh ITT stands to loose with the proposed trivesture have a NPV between $900 and
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