Why Bollenbach Opened His Bidding at $55 per Share

1814 WordsMay 17, 20088 Pages
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…show more content…
Below are the FCF estimates relevant to the merger of ITT from Hilton 's perspective, and a sensitivity analysis based on possible discount rates: Value of ITT to Hilton Lodging $ 355 $ 127 $ 102 $ 159 $ 213 Gaming $ (598) $ (11) $ 195 $ 213 $ 235 Education $ 19 $ 24 $ 27 $ 31 $ 35 World Directories $ 355 $ 127 $ 102 $ 159 $ 213 Trivesture Synergies 69 72 75 78 81 Merger Synergies 100 100 100 100 100 Terminal Value $ 14,114 Discount Rate Enterprise Value Debt Value of Equity Price Per Share 7.00% $12,409.12 $4,000 $8,409.12 $72.49 7.50% $12,140.72 $4,000 $8,140.72 $70.18 8.00% $11,879.52 $4,000 $7,879.52 $67.93 8.50% $11,625.30 $4,000 $7,625.30 $65.74 9.00% $11,377.85 $4,000 $7,377.85 $63.60 9.50% $11,136.93 $4,000 $7,136.93 $61.53 10.00% $10,902.37 $4,000 $6,902.37 $59.50 10.50% $10,673.95 $4,000 $6,673.95 $57.53 11.00% $10,451.49 $4,000 $6,451.49 $55.62 4. What do you expect the price of ITT’s equity would be if Hilton’s bid were to fail? Would it collapse to its pre-tender-offer trading value of around $44? Would it remain stable at its existing level of around $60, or would it rise to meet
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