NEW YORK -- Starwood Lodging granted ITT Corp.'s wish Friday, boosting its takeover offer to $10.6 billion to foil a hostile challenge from Hilton Hotels Corp. after ITT called for a continued bidding war.
The latest shot in the heated contest came five days before its scheduled conclusion, but did not seal ITT's fate.
Hilton refused to comment on increasing its $10 billion offer, but ITT and analysts were confident Hilton would continue its relentless pursuit by raising the bid again. Some analysts felt Hilton's offer, which includes more cash, remained superior even after Starwood upped the $10.25 billion pact it signed with ITT last month.
ITT shareholders are to vote Wednesday on Hilton's bid. Starwood boosted the cash portion of its offer by 70 percent to $3.2 billion, but that is still far behind Hilton's promised $5.5 billion cash payment.
"It did not materially improve things to the degree that it made their bid really better than Hilton's," said John Rohs, an analyst with Schroder & Co.
Both Hilton's $80-a-share offer -- its third since January -- and Starwood's bid include a combination of cash and stock.
Starwood chairman Barry Sternlicht said he would consider raising the price again if necessary.
At stake is ownership of the Sheraton and Caesars hotels and casinos and one of Corporate America's most famous names. Starwood would combine ITT's assets with the Westin hotel chain it is buying to create the world's largest hotelier. Hilton would add them to the well-known hotel brand carrying its name and Bally's casinos.
While raising its offer to $85 a share from $82, Starwood also said it will pay even more if it cannot complete the deal by February -- addressing Hilton's assertion that it can close the deal faster than Starwood and pay ITT shareholders quicker.
"This is clearly a superior bid. I believe it answers all of the issues that have been raised," said Sternlicht, whose Phoenix-based company is the nation's largest real estate investment trust.
ITT shares were up 183/4 cents at $79.811/4 per share in afternoon trading on a declining New York Stock Exchange. Starwood shares fell $1.25 to $57.561/4, while Hilton's dropped 561/4 cents to $31.061/4, also on the NYSE.
The new offer came a day after ITT proclaimed that neither Starwood nor Hilton had made its best offer, even though the asking price had risen from Hilton's first offer of $6.5 billion.
ITT urged shareholders to give its board more time to obtain the best possible purchase price from any potential bidder instead of approving Hilton's candidates for the board, who would then accept Hilton's offer. Hilton said it will drop out if its candidates are not elected.
ITT plans to hold an annual meeting in March to put its directors up for reelection if Hilton's nominees are rejected and the company has not been sold for the best price by then.
The company spoke to two other suitors, buyout firm Kohlberg Kravis Roberts & Co. and casino tycoon Steve Wynn's Mirage Resorts Inc., about a merger last month, but those discussions fizzled.
KKR has been contacted by both Hilton and Starwood about participating in their bids, but a spokeswoman said Thursday that the company has not made a decision about getting involved.
Andrew Zarnett, an analyst with Ladenburg Thalmann & Co., said he did not foresee any other suitors entering the bidding.
Zarnett said Hilton would be able to get the deal done faster and merge the companies in a more cost-effective fashion than Starwood, but he believes Starwood has the advantage as long its offer remains richer.
"Anyone who has ever underestimated the power of money has been wrong," he said.