Hilton Raises War Chest to Thwart Bids : Heir of Founder Gets Tentative IRS OK to Buy Estate’s Stake

Hilton Hotels has strengthened its bank-credit line by $350 million and Barron Hilton, its chairman and president, has won tentative approval from the Internal Revenue Service to buy a 27.4% stake in the hotel chain that his father founded, the company said on Wednesday.

The two events bolster Hilton’s defense against any takeover attempt by hotel and casino operator Golden Nugget, which last week offered to pay $488.5 million, or $72 per share, for the same block of 6.8 million shares.

That bid was rejected Friday by the estate of Hilton Hotels’ founder Conrad N. Hilton, which holds the shares.

Issue Proxy Materials

The company issued proxy materials Wednesday that included proposals for three anti-takeover defenses to be voted on by its stockholders at the annual meeting May 6. It also reported that its earnings for the first quarter of 1985 increased 22% over the same period last year on a 3% increase in revenue. The Beverly Hills-based company said earnings for the three months ended March 31 were $23.5 million on sales of $168.2 million.

Barron Hilton and the Conrad Hilton Foundation, a nonprofit charitable organization founded by his father in 1944, have been locked in a 6-year-old legal battle over the right to the 6.8 million shares and have asked the IRS to settle the dispute.

Hilton said Wednesday that the IRS had notified Barron Hilton that it has tentatively ruled in favor of his claim and that he may buy the shares. Conrad Hilton had left the shares to his foundation, up to the limit allowed by U.S. tax law, but Barron Hilton claimed that so many shares would constitute “excessive business holdings” for a charitable foundation. If the IRS agrees, that will trigger a clause in Conrad Hilton’s will entitling his son to buy the shares for $24.20 each--the market price of the stock at the time of Conrad Hilton’s death in 1979.

In composite trading Wednesday on the New York Stock Exchange, Hilton shares closed at $70.25, down 75 cents. It had been trading at less than $64 before the Golden Nugget offer.

Barron Hilton tried to exercise the option to buy the 6.8 million shares immediately after his father died, but the foundation and the California attorney general argued in probate filings in Los Angeles Superior Court that the foundation was entitled to 5.5 million of the disputed shares, or about 20% of the company’s outstanding shares.

Battle for Shares

The battle for the shares took on greater urgency last week with Golden Nugget’s offer to buy the stock from the estate. The company denied Wednesday that it has tried to hurry the IRS ruling. But Hilton vice president of finance, John V. Giovenco, agreed that the tax agency’s tentative ruling “comes at a propitious time.” A final IRS ruling allowing Hilton to buy the shares--a ruling that also would need approval by a California probate court--would make a Golden Nugget takeover virtually impossible.

Hilton officials would not speculate on when a final IRS or probate court ruling could be expected.

In Las Vegas, Stephen Wynn, chairman and chief executive of Golden Nugget, told the Associated Press that he “wasn’t impressed one bit” by Hilton increasing its line of credit and said the tentative IRS ruling “makes our offer look terrific.”

James E. Bates, executor of Conrad Hilton’s estate, could not be reached for comment.

In its other announcement Wednesday, Hilton said it has increased its line of credit with Manufacturers Hanover Trust Co. to $600 million from $250 million. Company officials said the expanded credit line would be used “for general corporate purposes” but hinted that it was a defensive reaction to Golden Nugget’s recent bid.

In making that bid, Golden Nugget said the offer was possibly a first step in a takeover bid for the entire company that analysts have estimated could be worth as much as $1.8 billion.

Hilton’s anti-takeover measures, to be voted on May 6, include a proposal to adopt staggered terms for the company’s directors--a move that makes it harder for a corporate raider to gain control of the board in a single election.

The other proposed changes would require a 75% vote of the company’s stock to remove directors or approve a merger with anyone owning more than 10% of Hilton’s stock.

“The purpose of the proposed amendments . . . is to discourage certain types of transactions . . . which involve actual or threatened change of control of the company,” Hilton said in its proxy statement.

Wynn noted to the Associated Press that the changes still must be approved by Hilton shareholders, adding, “Hilton is principally owned by institutions, and I don’t believe the institutions will want to see Barron Hilton lock up the company like that.”

In its financial report for the first quarter, Hilton said its gains were largely from gaming operations in its three casino operations in Nevada, where occupancy rates were 89%, up from 85% in the first quarter of 1984, and from hotels nationwide, where occupancy was 65%, up from 61% for the same period a year earlier.

New Jersey gambling regulators in February found Hilton unfit to hold a casino license for its $308-million, 610-room hotel-casino in Atlantic City--the biggest project in the company’s history--but subsequently agreed to give Hilton a rehearing on the case.

Hilton owns, leases or manages 53 hotels in the United States and has franchised another 205 hotels around the world.