Stymied, Not Stopped

The fast-moving president and chief executive of Hilton Hotels Corp., Stephen F. Bollenbach, has recently found himself doing something out of character: waiting.

Nearly five months after launching a hostile takeover bid for rival ITT Corp., Bollenbach has been stymied at every turn. A few days ago, Bollenbach fired off a testy letter to the ITT board of directors and started another round of legal maneuvering to force the company to the bargaining table.

So far, however, the corporate standoff continues, with no end in sight.

Despite the months-long stalemate, Hilton executives say the $10.5-billion bid for ITT, which owns Caesars Palace in Las Vegas and the Sheraton hotels, remains on track. But, concedes Bollenbach, “I think anything that slows down the process . . . is bad for our deal.”

A fast and clean takeover of ITT would have been a crowning achievement for Bollenbach, 54, and bolstered his reputation as a top-notch corporate strategist. Instead, the so-far fruitless pursuit has overshadowed the classic corporate turnaround Bollenbach has engineered at Beverly Hills-based Hilton, one of America’s most well-known businesses.

“He took a sleepy company and converted it into a dynamic growth company in a very short period of time,” industry analyst Andrew Zarnett said. “He’s got a vision. He gets things done.”

The executive wasted little time upon arriving at Hilton early last year. Within a few days, Bollenbach had crafted a focused strategy for the hotel and casino company, which had spent several years heading down different paths. Within four months, Bollenbach had announced a $3-billion deal to take over Bally Entertainment, making Hilton the world’s largest player in the gambling business. By summer’s end, he had established close ties to Hilton’s long-estranged international operations.

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But the glory of last year’s deals and accomplishments seems to have faded amid the standoff with ITT. The takeover target has even managed to steal some of Bollenbach’s thunder by selling off its sporting operations--which include the New York Knicks basketball team and Madison Square Garden--at lofty prices. Bollenbach had proposed doing the very same thing as part of his takeover plan, but ITT has gotten the praise.

“Everything that Stephen wanted to do, ITT management is doing now,” said Edward Oppedisano, a bond analyst at Deutsche Morgan Grenfel.

ITT says the sale of its sports business and a few hotel properties had been in the works long before Bollenbach proposed a takeover.

“We are doing things we had planned on doing and are doing them in an accelerated fashion,” spokesman Jim Gallagher said.

If ITT manages to get away, Hilton will continue on its course of buying individual hotels and gaming properties and seeking other takeover targets, Bollenbach said. But the executive, who spends about half his day devoted to the ITT offer, said he remains committed to making the deal happen--even if time is working against him.

“There is no other company that fits so well with ITT as we do,” he said.

Bollenbach had won wide respect for his financial savvy and decisive nature long before he took the job at Hilton in February 1996 after a brief stint as chief financial officer at Walt Disney Co. His arrival was greeted warmly by investors, who bid up Hilton shares more than 10% after his appointment was announced.

After graduating from UCLA and Cal State Northridge, Bollenbach, who was born and reared in Downey, began his financial career working for industrialist D.K. Ludwig, once the richest man in the world.

After working in Ludwig’s private domain, Bollenbach began to establish his credentials as a corporate strategist. He was the chief architect behind Disney’s $19-billion merger with Capital Cities/ABC Inc. and was also behind the controversial breakup of Marriott Corp. He also helped flamboyant developer and hotel operator Donald Trump resolve his financial woes.

After arriving at Holiday Corp., which owned the Holiday Inn chain, Bollenbach championed the radical idea of selling off the well-known but slow-growing lodging operation in favor of focusing on Holiday’s lucrative gambling business, now known as Promus.

“He was the first [in the company] to think that the Holiday Inn business was not going to be able to grow at a rate that was acceptable to us,” said Promus Chairman Michael Rose, who hired Bollenbach during the mid-1980s. “It was not the kind of thing that was discussed much until he arrived.”

At many companies, most notably Disney and Hilton, Bollenbach also challenged a long-standing corporate aversion toward debt. Disney, for instance, assumed a huge amount of debt to finance the Cap Cities/ABC takeover.

Hilton debt loads have also risen in the last year, in what has been described as the “The Bollenbach factor,” according to Oppedisano.

Despite concern among bondholders, Bollenbach said he sees little reason to avoid using debt to finance company expansions if an investment-level credit rating can be maintained.

“Some companies think of debt in almost a biblical sense--that it’s bad,” said Bollenbach. “We don’t necessarily favor debt nor do we fear debt. We want to stay at investment grade, but it’s important to use debt.”

Bollenbach has also been involved in some messy corporate affairs. In the early 1990s, Bollenbach incurred the wrath of bondholders when he engineered the split of Marriott Corp. into two companies that left bondholders saddled with billions in debt. The deal was completed after a bondholder lawsuit was settled.

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His brief stint at Disney, which lasted less than a year before he left for Hilton, also raised eyebrows. Many in Hollywood had speculated that Bollenbach was upset over the 1995 hiring of super-agent Michael Ovitz as president of Disney, dashing his hopes of becoming chief executive. (Ovitz resigned late last year.)

But Bollenbach has denied those rumors, saying he could not turn down the chief executive job at a Fortune 500 company even at the risk of being viewed in corporate circles as “flaky.”

“I really enjoyed my experience at Disney,” said Bollenbach, who keeps his Mickey Mouse ears on the shelf behind his desk at Hilton headquarters.

Bollenbach, who bought a $6.5-million home in Bel-Air last year, said he’s at Hilton for the long run.

“This is the last job I’m going to have, and it’s the perfect job for me,” he said.

Bollenbach’s relationship with Hilton started well before he got the job. Chairman Barron Hilton turned to Bollenbach for advice as the company contemplated spinning off its gambling unit. In what became a weekly ritual, Bollenbach stopped off to share breakfast and advice with Barron Hilton at the company offices in Beverly Hills before continuing on to his job at Disney headquarters in Burbank.

After Hilton rejected the spinoff and accepted the subsequent resignation of former Chief Executive Raymond C. Avansino in late 1995, Barron Hilton asked Bollenbach to lead the company.

“He really wanted to get on with his retirement,” Bollenbach said. “I trusted Barron would turn over the operations of the company and not be one of these people that hang around in the background. I had a wonderful, wonderful job at Disney, and I didn’t want to come here and be No. 2.”

Bollenbach moved quickly to boost the presence of the company in both the hotel and gambling industries.

“It doesn’t make sense to split it up today, because there is a huge value in simply being big,” he said. “We can take our bulk and compete against Marriott, or we can take our bulk [and compete against gambling companies]. It just makes us a more effective competitor.”

The company quickly boosted the size and breadth of its hotel operations, which industry observers said had not been fully utilized despite having one of the nation’s most recognized brand names. Hilton had also lagged behind other hoteliers in targeting more segments of the traveling public. Marriott, for example, caters both to well-heeled business travelers, with its full-service hotels, and to budget-minded vacationers, with limited-service inns.

Last year, Hilton added about a dozen franchised properties and bought out partner Prudential Insurance Co. to take complete control of some of the largest and most profitable Hiltons in New York, Chicago and other big cities. The company also stepped up development of a lower-priced lodging chain called Hilton Garden Inns. The company plans to open about 100 of the inns by 2000.

Bollenbach also established connections with British gaming and lodging giant Ladbroke Group, which owns and operates Hilton hotels in most foreign markets. The partnership is expected to speed efforts to promote and expand the Hilton brand name internationally, where domestic rivals such as Westin and Hyatt have a large presence.

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On the gaming side, the Bally acquisition gave Hilton entry into Atlantic City for the first time and allowed it to bulk up its already sizable Las Vegas casino operations.

Thanks in large part to the Bally acquisition and the performance of its big-city hotels, Hilton’s net income during the first quarter of 1997 shot up 37% from the same period last year to $231 million.

Since Bollenbach has arrived, Hilton’s stock price has shot up more than 50%. On Friday, shares rose 25 cents to close at $28.75 on the New York Stock Exchange.

Not all has gone smoothly for Bollenbach and Hilton, however. Last fall, the company found itself mired in a scandal over its close relationship with a government official who helped Hilton win approval to run a riverboat gaming operation in Kansas City, Mo.

The relationship was viewed as a conflict of interest and threatened to damage the company’s credibility with gaming officials. Hilton moved quickly to cut its ties with the government official, but the flap forced Avansino, the former Hilton chief executive who was involved with the venture, to resign his seat on Hilton’s board.

“We did some things that were kind of dumb,” Bollenbach said. “The events in Kansas City went right to that question: Can you trust these people? Should they be in this business?

“After all that hassle, [the riverboat] is doing terrible,” he said.

In recent weeks, Hilton has faced another threat to its reputation. Gambling regulators in New Jersey said they plan to look into ties between Barron Hilton and a Costa Mesa businessman and self-described arms smuggler, Felix Vivas. The two men met and corresponded for several years before Vivas asked Hilton in 1994 to help finance the sale of military helicopters to Mexico.

The relationship came to light in part because of an investigation launched by ITT after Hilton made its takeover bid.

Hilton declined to participate in the helicopter deal, according to company executives.

Despite these distractions, Bollenbach at the start of this year launched his most ambitious move of all with the ITT takeover bid--only 11 months after he joined Hilton. Such a deal would significantly boost Hilton’s inventory of highly profitable big-city hotels through ITT’s Sheraton division. ITT’s Caesars World unit also operates large casinos in Las Vegas and Atlantic City.

A Hilton-ITT merger would also allow for major cost reductions--at least $100 million annually--by eliminating overlapping operations and staffing.

Despite a battery of legal and financial moves by Hilton, ITT has managed to elude Hilton’s grasp and is expected to postpone a proxy fight and annual shareholders meeting until the fall. In addition, ITT has reportedly considered selling off some of its prize hotel properties--such as the St. Regis in New York.

Hilton has challenged ITT’s plans to sell off hotels, and Bollenbach has threatened to lower his company’s $55-a-share offer if such sales are completed.

ITT’s maneuvers have gained it valuable time to reorganize the company in much the fashion Bollenbach has proposed. They may also have eroded stockholder support for a Hilton takeover.

“I think they have a good chance of remaining independent,” said Oppedisano, the bond analyst. “They are doing a lot of things that Mr. Bollenbach wanted them to do. It’s going to drive the [ITT] share price to a level where it would make it unattractive for Hilton to pursue. Hilton wants to maintain their investment-grade rating.”

Investment manager Mario Gabelli, whose investment funds own about a million ITT shares, as well as 5 million shares of Hilton stock, has Bollenbach to thank for boosting the value of his ITT holdings. But he’s also waiting to see what ITT Chief Executive Rand Araskog will do with the cash piling up as the company sells off operations.

“It’s a nine-inning ballgame, and it will be September before the full outcome is known,” Gabelli said.

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Bollenbach said he remains committed to an ITT takeover but that his company will continue to grow with or without the acquisition, adding 10,000 hotel rooms annually over the next four to five years. Many analysts agree, saying that a failed ITT takeover would only temporarily delay Hilton’s expansion plans.

Said Bollenbach: “If their management finds a silver bullet to keep themselves entrenched, it’s not going to be bad . . . for our company. We will have to run a little bit quicker, but we will still get to the same place.”

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Stephen F. Bollenbach

Age: 54

Residence: Bel-Air

Wife: Barbara May Christeson

Current job: President & chief executive, Hilton Hotels Corp., Beverly Hills

Past jobs:

1995-96, Walt Disney Co., senior executive vice president and chief financial officer

1993-95, Host Marriott Corp., president & chief financial officer

1992-93, Marriott, chief financial officer

1990-92, Trump Group, chief financial officer

1986-90, Holiday Corp./Promus Cos., senior vice president and chief financial officer

1982-86, Marriott, senior vice president and treasurer

1980-82, Southwest Savings & Loan Assn., chairman and chief executive

1968-80, Ludwig Group, vice president and chief financial officer

Education:

Cal State Northridge, 1968 (master’s)

UCLA, 1965 (bachelor’s)

Long Beach City College, 1962 (associate of arts)

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Ahead of the Game

Stephen Bollenbach has steered a speedy turnaround at Hilton Hotels Corp., reflected in stock price and revenue gains. Debt-refinancing charges reduced 1996 income by $200 million.

Stock Price

Monthly closes since May 1992 and most recent:

Friday close: $28.75

Revenue

In billions of dollars:

1996: $3.9

Net income

In millions of dollars:

1996: $82

Sources: Tradeline, company reports, Bloomberg News