Thursday, April 4, 1996 | 11:59 a.m.
The war between ITT Corp. and Hilton Hotels Corp. for gaming-industry dominance has fueled a runup in the stock prices of rumored takeover targets Bally Entertainment Corp. and Harrah's Entertainment Corp.
Investors were smiling, investigators frowning after a 20-fold jump in Bally stock-trading volume and a 34 percent rise in its price since last Thursday.
The moves, which began before dissemination of news reports saying the company is discussing a possible merger with either ITT or Hilton, are being studied by Securities and Exchange Commission regulators concerned about possible insider trading.
Meanwhile, Harrah's stock rose 10 percent Wednesday as rumors swept Wall Street that ITT was preparing a tender offer for the company that owns or manages 16 casinos worldwide. One unconfirmed report said ITT would offer $48 a share for Harrah's common, which closed at $32.50, up $3 and near a 52-week high.
The Bally merger talks mark a second front in the budding war between ITT and Hilton, who are also competing with each other and Harrah's for control of a huge New Orleans casino project launched by a Harrah's subsidiary but which closed when revenue fell below projections.
Bally, Hilton and ITT executives refused to discuss the merger reports, but pointedly refused to deny the existence of negotiations.
"Bally doesn't comment on market rumors," said Bally's Lori Terry.
"We aren't commenting on the Bally reports," said Hilton's Mark Grossman.
"We decline to comment on the Bally story," said ITT's Jim Gallagher.
Last Thursday, Bally stock was hovering at $16.125, just below its 52-week high of $17 a share. Volume was 221,500 shares, a bit below Bally's average of a half-million shares daily. By Monday -- before the unconfirmed reports were released -- volume had soared to 1.4 million shares as the price hit a year-long high of 18.
On Tuesday, volume rocketed to 4.6 million shares as the stock jumped to $21.625. Wednesday, more than 4.7 million shares were traded, though the price was up just 12.5 cents.
The movements triggered SEC and New York Stock Exchange review mechanisms designed to avoid insider trading. The SEC said it wouldn't discuss any investigation into possible violations "unless and until" charges were filed.
But an enforcement division spokesman said such "price and volume aberrations would stimulate an inquiry into who is trading the stock." He said an investigation could take "from three days to a couple of years" to complete, depending on its complexity.
The investigation would attempt to disclose if anyone privy to inside information -- data that could be expected to affect a stock's price -- bought or sold Bally shares in the past few days.
Officers, directors or other associates of companies involved in secret merger talks are barred from buying or selling stock prior to disclosure of the discussions to the general public.
Despite the rapid runup in Bally's stock, it's possible the price could go still higher -- especially considering the players. ITT is headed by Rand Araskog, who's overseen $4.5 billion in acquisitions -- including ITT's purchase of Caesars World -- in the past two years.
Araskog's second-in-command, ITT President Robert Bowman, "is definitely someone who is not afraid to pull the trigger," said Dean Witter Reynolds analyst Joseph Coccimiglio. "They're a growth company. They're very aggressive."
Equally aggressive is Hilton's new president, Stephen Bollenbach, who as a Walt Disney Co. executive engineered Disney's $19 billion purchase of ABC/Capital Cities last year.
On the job with Hilton less than two months, Bollenbach has intensified talks with Ladbroke Group Plc, Europe's largest bookmaker and owner of the Hilton name outside the United States, regarding merging certain operations.
And Bally Chairman Arthur Goldberg is known as a shrewd, tough negotiator likely to relish being romanced by two well-heeled suitors.
"I don't think Bally will agree to $24 or $25 a share," Coccimigilio said, referring to the price reportedly under consideration for a Bally purchase. "I've heard they want $30 or perhaps even more."
As for the battle of New Orleans, ITT spokesman Jim Gallagher said Hilton's offer to take over the Harrah's Jazz casino project "has no effect at all" on ITT's bid for that deal. Harrah's was to present its own bankruptcy reorganization plan today as part of its effort to retain control over the project, but has indicated it couldn't pay the $100 million minimum annual tax required by the state.
"Now it's a three-horse race," said Gallagher. "ITT has made a fair and proper offer to the city and state and said we'd pay $100 million a year in taxes. We've also allayed the fears of the city's restaurant owners by offering concessions."
Hilton's Grossman said bondholders for the project approached the company about completing and managing the partially built casino. "We'll know in 10 days to two weeks, when we've completed our due diligence, whether it's feasible," he said.
"The bondholders are trying to get the best possible deal for themselves," said ITT's Gallagher. "We're offering the best possible deal for the state, because our money goes to the taxpayers."
Boston-based Fidelity Investments, a member of the bondholder committee that approached Hilton, declined to comment.
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