Question

Answer the following questions:

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

2. Why did Bollenbach not raise the bid between January and July?

3. What is the stand-alone value of ITT's equity? How did this
compare to ITT's historical market value? What was ITT's "break-up" value? What was ITT's value to Hilton?

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 as its existing level of around $60?, or would is rise to meet ITT's share-repurchase price of $70?

5. What are the implications of an EVNT analysis in determination of
the next bid? At what bid would risk arbitrageurs be inclined to tender their shares to Hilton? How much do they expect to earn from the new bid?

6. How should Bollenbach react to ITT's trivestiture defense? Should he change the bid or walk away?

Solution Preview

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2. Why did Bollenbach not raise the bid between January and July?

Bollenbach probably thought that there was no need to raise the bid between January and July because he thought there was a low likelihood of competition from other potential bidders.


3. What is the stand-alone value of ITT's equity? How did this compare to ITT's historical market value? What was ITT's "break-up" value? What was ITT's value to Hilton?

Stand-alone value: From the same Exhibit above, ITT’s intrinsic value of equity without synergies is $36.04 to $73.55 with a best guess of $58.07

Historical market value: ITT’s pre-tender-offer share price is from $43 to $46 per share

Break-up value: $61/share

ITT’s value to Hilton (with synergies): ranges from $43.77 to $84.73 with a best guess of $67.94...

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