Consolation Prizes

If you love a deal, let it go; part of it may come back to you. Just ask Park Place Entertainment and Comcast.

Sometimes opportunity knocks more than once in the world of mergers and acquisitions. But a company must keep listening for it.

Executives from Hilton Hotels Corp.–which was outbid by Starwood Hotels & Resorts Worldwide Inc. for lodging and casino giant ITT Corp. in 1997–were all ears after Starwood claimed its $14.6 billion prize.

First, Hilton spun off its own casino business into Park Place Entertainment Corp., installing former Hilton gaming chief Arthur Goldberg as Park Place CEO, and making Hilton CEO Stephen Bollenbach the new concern’s chairman.

The move “set up Park Place in a growth strategy that involved both acquisitions and internal development,” says Scott LaPorta, who left the post of Hilton treasurer to become Park Place’s CFO.

Then, in April, Park Place seized an opportunity that surprised almost everyone. It agreed to pay $3 billion for a major chunk of Starwood’s new ITT property: the Caesars World Inc. stable of casinos.

Such tenacity is admirable , says Mark Sirower, visiting professor at the University of Pennsylvania’s Wharton School and an M&A expert. “A lot of things happen after there’s an acquisition,” he notes. “There are asset dispositions and spin-offs, and new executives come and go,” potentially creating a fertile time to revisit a deal. “Besides, if a competitor acquires something you were interested in, you definitely want to keep a keen eye on it anyway.”

Acquisitive companies like United Dominion Industries, a broadly based Charlotte, North Carolina, manufacturer, have benefitted from studying alternatives to the deal that never happened. And recently, so did Comcast Corp., of Philadelphia, as it searched for ways to build its cable-television business.

Still, it’s rare that a company returns to pick up some of the pieces after losing a bidding contest, suggests Eugenia Shepard, an analyst with the Mergerstat unit of investment bank Houlihan Lokey Howard & Zukin, in Los Angeles. For one thing, the victor tends to hold the best properties off the market when asset sales begin. “Will things be discarded? Yes,” she says. “But what’s available is often not the same set of jewels you were after.” Plus, in the current active merger environment, “there are so many choices out there already,” she says, “a company doesn’t have to come back to the same table.”

Veni, Vidi, Vici

It is easy to see why Park Place came back to Caesars’s tables.

As Park Place scoped out potential acquisitions, “it was in the back of our minds that Caesars might eventually be available,” Park Place’s LaPorta says. “The executive managers of Starwood were very public about their interest in looking hard at the gaming properties,” and possibly selling them. (A Starwood spokesman says the company had viewed the casino business as a trial situation and felt, a year into the experiment, that Caesars was performing below expectations.) “And it’s not any mystery that we [Hilton] were interested in Caesars when we tried to acquire it as part of the ITT offer.”

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