Word: hiltonization
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Remember the Greek mythological figure Icarus who flew too close to the sun on wings of wax? The modern-day version is Barry Sternlicht, the highflying CEO of Starwood Lodging Trust, which is in a vicious proxy contest this week with Hilton Hotels for control of ITT Corp. By topping Hilton's offer with a $10.2 billion bid for ITT, Sternlicht has thrust himself into what had been a very personal battle between Hilton CEO Stephen Bollenbach and ITT boss Rand Araskog--and thus into the public spotlight. Sternlicht is a Wall Street darling. His stock, including dividends, has soared...
That's not to say Sternlicht has built an empire on a tax loophole, or that his stock would completely deflate. He's a respected hotel owner-operator who has already cut a $1.6 billion deal for Westin Hotels and has franchise agreements with major chains, including Hilton. It's not even clear that Starwood's structure gives him an unfair edge. Bollenbach says it does; Sternlicht says it doesn't. Ken Kies, chief of staff for the congressional Joint Taxation Committee, is concerned enough to be looking, but he says chances of a change anytime soon "are about zero...
...other savings that Starwood can afford to outbid all comers. When Sternlicht was snapping up smaller companies, heavyweights like Bollenbach took note but didn't fuss. Now that Sternlicht is going after bigger quarry, he's on Bollenbach's radar, and the fuss has just begun. The Hilton boss has been lobbying against the paired-share structure. By opting to go after a big name like ITT, Sternlicht has created a personal Catch-22. If the scrutiny he's invited shows that his paired-share status is an unfair edge, lawmakers may impose limits; if it shows relatively little value...
Starwood Lodging, a real estate investment trust (REIT) based in Phoenix, Ariz., was able to outbid Hilton because of a loophole in the tax laws that jacks up a reit's market value. If ITT stockholders approve the deal, the new combination would become the largest lodging company in the world, with 650 hotels in 70 countries and total annual revenues of more than $10 billion. As for Araskog, 65, under the plan he will step down next year and get a seat on Starwood's board plus a consolation prize: a $55 million severance package that was designed...
...over, right? Well...there is an enticing story line that could have the wily Araskog pulling off one last masterly stroke. Once ITT shareholders formally reject Hilton's bid next month, the ITT chairman could cancel the Starwood deal and continue his 18-year reign over the company. No one ever played Monopoly like this...