<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 30, 1998
Hilton Hotels Corporation
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(Exact Name of Registrant as
Specified in Charter)
Delaware 1-3427 36-2058176
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(State or Other (Commission (IRS Employer
Jurisdiction of File Identification
Incorporation) Number) No.)
9336 Civic Center Drive
Beverly Hills, California 90210
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(Address of Principal
Executive Offices)
(310) 278-4321
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(Registrant's telephone
number, including area code)
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ITEM 5. OTHER EVENTS
On June 30, 1998, Hilton Hotels Corporation (the "Company") issued
a press release (the "Press Release") announcing the execution of an
Agreement and Plan of Merger with Grand Casinos, Inc. (the "Merger
Agreement"). A copy of the Press Release is attached as exhibit 99 hereto and
is incorporated herein by reference.
In connection with the transactions contemplated by the Merger
Agreement, Stephen F. Bollenbach has agreed to waive any rights he has under
Section 3(h)(i) of his Employment Agreement with the Company dated February
1, 1996. Such section provides for accelerated vesting of the Incentive
Options granted to him in the event of a "Qualified Transaction," which is
defined as "a disposition (whether by sale, spin-off, merger or otherwise) of
substantially all of the assets comprising either the Company's hotel
business or the Company's gaming business occurring (i) on or before June 30,
1998 or (ii) on or before December 31, 1998, pursuant to a binding written
contract entered into on or before June 30, 1998." The transaction
contemplated by the Merger Agreement would constitute such a "Qualified
Transaction" if it were to close on or before December 31, 1998, but Mr.
Bollenbach has agreed to waive this provision such that no acceleration of
vesting will occur.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
7(c) Exhibits.
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99 Press Release of the Company, dated June 30, 1998.
2
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Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
HILTON HOTELS CORPORATION
By: /s/ THOMAS E. GALLAGHER
-------------------------------------------
Name: Thomas E. Gallagher
Dated: June 30, 1998 Title: Executive Vice President and
General Counsel
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EXHIBIT 99
Contact: Marc Grossman 310-205-4030/
310-205-4012
Kathy Shepard 310-205-7676
Geoffrey Davis 310-205-4541
HILTON TO SPLIT GAMING, LODGING OPERATIONS;
NEW GAMING COMPANY TO MERGE WITH GRAND CASINOS
BEVERLY HILLS, Calif., June 30, 1998 -- Hilton Hotels Corporation (NYSE:HLT)
announced today that it will separate its gaming and lodging operations,
creating a new publicly held gaming company. The separation will be accomplished
through a tax free distribution to Hilton shareholders of the shares of the
gaming company. Following completion of the distribution, the new gaming company
- - -- the name of which will be determined at a later date -- will merge with the
Mississippi gaming operations of Grand Casinos, Inc. (NYSE:GND) in a transaction
comprised entirely of the new gaming company stock. The merger will create the
world's largest and most diverse casino gaming entity.
Both transactions are subject to shareholder and regulatory approvals and
are expected to be completed by year-end 1998. Hilton plans to obtain a ruling
from the Internal Revenue Service that the distribution will not be taxable to
Hilton or Hilton shareholders. The Boards of Directors of both Hilton and Grand
Casinos have approved the transactions.
The gaming company merger, which includes only Grand Casinos' three casino
operations in Tunica, Gulfport and Biloxi, Mississippi, calls for Hilton
shareholders to own approximately 86.4 percent of the new gaming company, with
Grand Casinos shareholders owning approximately 13.6 percent. Under the
distribution, Hilton shareholders will receive one share of the new gaming
company for every share owned in Hilton Hotels Corporation. Pursuant to the
merger with the new gaming company, Grand Casinos shareholders will receive
shares of the new gaming company determined by an exchange ratio based upon a
"valuation factor" for Grand Casinos' Mississippi casino business and for the
new gaming company business as described in the attachment to this press release
titled "Determination of Exchange Ratio." Grand Casinos shareholders will also
receive shares in a newly formed company comprised of Grand Casinos' Native
American casino management business and various other assets which Grand Casinos
will spin-off tax-free to its shareholders contemporaneously with the merger.
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Split
2-2-2-2
Total consideration for the Grand Casinos assets acquired by the new gaming
company is expected to be approximately $1.2 billion, including assumption of
approximately $550 million of Grand Casinos net debt estimated to be outstanding
as of December 31, 1998.
Post-split, and pro forma for the assumption of Grand Casinos' debt, the
new gaming company and Hilton Hotels will have relatively equal amounts of net
debt. Each company, in its first year of operation, is expected to have a
debt-to-EBITDA ratio of less than three times, which is in line with investment
grade rated companies in both industries. Current plans call for the new gaming
company to refinance Hilton's revolving bank debt and be indebted to Hilton for
a portion of its long-term debt in an amount resulting in both companies having
approximately the same amount of net debt at year-end 1998.
"These transactions will create enormous value for our shareholders. The
spin-off will facilitate acquisitions by the gaming company, such as the Grand
Casinos merger, and thereby allow the gaming company to pursue the
value-creating goal of consolidating the gaming industry, while allowing Hilton
to realize the full value of our hotel business," said Stephen F. Bollenbach,
president and chief executive officer of Hilton Hotels Corporation. "The
existing hotel company remains a dedicated lodging company with unmatched assets
in an industry environment that is the most favorable in decades, tremendous
properties and brand concepts that should continue to see excellent growth for
many years to come and a growth strategy focused on acquisitions. Additionally,
the new gaming company will be the biggest and most diverse player in an
industry where size is extremely important, a company with a leading presence in
the best markets and an organization dedicated to growth through strategic
development and acquisition," he said.
Bollenbach will become chairman of the new gaming company, while
retaining his positions with Hilton. Arthur M. Goldberg, currently president
of Hilton's gaming operations, will become the new gaming company's president
and chief executive officer and serve on its Board of Directors. Grand
Casinos Chairman Lyle Berman will serve on the new gaming company's Board of
Directors, and will be active in the new company. Additionally, current
Grand Casinos CEO and president Thomas Brosig will assume responsibility for
the new gaming company's emerging market operations, which include
Mississippi, Louisiana and the Midwest. Goldberg said that additional
management positions and personnel in the gaming company would be announced
as the transaction moves closer to completion.
Following completion of the transactions, Hilton Hotels Corporation will
maintain its position as one of the world's foremost lodging companies. The
company owns, manages or franchises approximately 260 hotels in the United
States, including ownership of some of the world's most renowned properties,
such as The Waldorf=Astoria, San Francisco Hilton and Towers, Hilton Hawaiian
Village and Palmer House Hilton. Hilton will continue to pursue a strategy of
acquiring full-service hotels in markets seeing little new supply, while also
franchising its Hilton Garden Inn properties -- with 200 expected to be open or
under contract by 2000 -- as well as strengthening its worldwide alliance with
Hilton International.
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Split
3-3-3-3
Pro forma 1997 EBITDA for the new gaming company, including the acquired
Grand Casinos properties, was approximately $650 million. As the world's
largest gaming company, the new entity in 1999 will have 18 gaming properties
with a total of 1.4 million square feet of gaming space and more than 23,000
hotel rooms, and a significant presence in virtually every major U.S. and
international gaming market, including Nevada, New Jersey, Mississippi,
Louisiana, Missouri, Australia and Uruguay. As a result of the acquisition of
Grand Casinos, the new gaming company becomes the leading gaming concern in the
Mississippi market, the third-largest -- and fastest-growing -- casino gaming
market in the U.S., complementing the company's existing leadership positions in
Las Vegas and Atlantic City.
"The keys to success in the gaming business include having a leading
presence and strategic locations in the major gaming markets of Las Vegas,
Atlantic City and Mississippi; the ability to cater to a wide range of
customers; strong management; a strong balance sheet; significant new projects
under development; the ability to grow by adding new casinos to the collection
and sheer size," Goldberg said. "Our new company, alone among our competitors,
qualifies on all counts."
He continued: "The size and strength of this new company brings with it
several advantages that will help fuel growth and therefore benefit our
shareholders. These include an attractive cost of capital; the resources to
pursue any and all appropriate worldwide development and acquisition
opportunities; and the unique ability to provide products and services catering
to the widest possible range of customers, including package customers,
conventioneers, free-and-independent travelers and high-end casino customers.
"The merger with Grand Casinos, a company so ably led by Lyle Berman,
brings us an immediate, powerful and high quality presence in the fast-growing
Tunica and Gulf Coast markets, enabling us to show a geographic balance of cash
flow and a diversity of customer profiles that is unmatched in our industry,"
Goldberg said.
"This merger presents an excellent strategic opportunity for Grand Casinos
to diversify our operations while aligning our business with one of the most
respected and valued organizations in the entertainment and hospitality
industry. We believe that combining Grand Casinos' Mississippi operations with
Hilton's gaming division will allow both companies' shareholders to realize
optimum value from their investments. The combination and resulting size and
strength create a superior opportunity for growth for all the shareholders of
the new gaming company," Berman said.
Goldberg added: "With the quality and guest loyalty of these existing
properties in the Gulf Coast, coupled with the improvements already made and now
in development, we are absolutely confident of our ability to continue showing
outstanding growth in Gulfport/Biloxi over the long term. Having great
properties in great locations is what is enabling our Las Vegas and Atlantic
City operations to continue showing outstanding results."
"Following the split, Hilton Hotels Corporation remains an entity with a
number of distinguishing and valuable characteristics," Bollenbach said.
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Split
4-4-4-4
"The full-service lodging business has been extremely powerful over the
last few years, and with this segment of the industry expected to continue
showing tremendous growth for at least the next four to five years, we are
looking forward to enhancing even further our leadership position in it, and
will be aggressively considering growth alternatives to continue creating
maximum value for our shareholders," he said.
"What our hotel business brings to shareholders is the industry's most
recognized and respected hotel brand name; the best portfolio of hotel real
estate in the United States; a worldwide strategic alliance with a global
lodging powerhouse in Hilton International; a strong balance sheet that will
allow us to pursue our acquisition strategy; and an experienced, aggressive
management team focused on building shareholder value."
# # #
NOTE TO EDITORS: Video footage of Hilton Gaming properties is available
this morning via satellite starting at 8:30 a.m. EST: C BAND;
GALAXY 9; TRANSPONDER 2; AUDIO 6.2; 6.8; DOWNLINK FREQUENCY
3740 MEGAHERTZ
NOTE TO MEDIA: A conference call to discuss this announcement is scheduled
for 10:00 a.m. (PST). DIAL 1-800-777-5216. See attached
memo for further details.
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Split
5-5-5-5
DETERMINATION OF EXCHANGE RATIO
Pursuant to the merger with the new gaming company, Grand Casinos
shareholders will receive shares of the new company determined by an exchange
ratio based upon a "valuation factor" for Grand Casinos' Mississippi casino
business and for the gaming company's business as described below. Grand
Casinos shareholders will also receive shares in a newly formed company
comprised of Grand Casinos' Native American casino management business and
various other assets, which Grand Casinos will spin-off to its shareholders
contemporaneously with the merger.
The valuation factor used for each company is based on a notional
enterprise value ($1.2 billion for Grand Casinos and approximately $6.025
billion for the new gaming company) minus, in each case, estimated debt as of
the closing date ("net equity value"). "Debt" is defined to include
indebtedness for money borrowed, increases in net working capital (excluding
certain items) from year-end 1997 levels, and certain unfunded budgeted capital
expenditures for projects currently underway. The actual number of gaming
company shares issuable to Grand Casinos shareholders will be determined by the
relationship between the relative net equity values of the two companies at
closing (with further adjustments in the event of increases in the outstanding
shares of the companies, other than as a result of option exercises or
conversion of Hilton preferred stock). By way of illustration, if at closing
Grand Casinos' net debt is $550 million and the new gaming company's debt (pro
forma for 1999 Paris development spending) is $1.9 billion, Grand Casinos
shareholders would receive .973 gaming company shares for each Grand Casinos
share, representing approximately 13.6% of the combined company.
The downward adjustment in the number of gaming company shares issuable to
Grand Casinos shareholders is limited, and no further downward adjustment will
be made if Grand Casinos' net equity value at closing drops below $617.6
million. In the event Grand Casinos' net equity value is $617.6 million or less
and the gaming company's net equity value remains consistent with the
assumptions made in establishing the exchange ratio, Grand Casinos shareholders
would receive approximately 13% of the combined company. In the event that the
net equity value of Grand Casinos is less than $585.1 million, the new gaming
company may terminate the merger agreement.
