ITT REJECTS HILTON'S TAKEOVER BID, CALLS $6.5 BILLION OFFER INADEQUATE.

Byline: Kenneth N. Gilpin The New York Times

ITT Corp. said Wednesday that its board had unanimously rejected Hilton Hotels Corp.'s $6.5 billion hostile takeover bid, setting up what looks like a protracted struggle for control of the hotel and casino company.

ITT had been expected to reject the cash and stock offer, which is valued at $55 a share. In announcing its decision, ITT said that the offer was inadequate and that it intended to remain independent. ITT added that the combined company could have problems with antitrust and gambling laws.

Hilton notified ITT on Tuesday that it intended to nominate its own slate of directors at ITT's next annual meeting and provided a list of the nominees. On Wednesday, Hilton appeared unfazed by ITT's decision.

In a prepared statement, Stephen Bollenbach, Hilton's chairman and chief executive, said, ``While we still hope that ITT will ultimately sit down to talk with us, we have also been quite clear in our commitment to making this transaction a reality, including taking the matter directly to ITT's shareholders.''

Bollenbach reiterated his belief that Hilton's current bid was a ``strong offer,'' but analysts and investors have said repeatedly that Hilton would have to raise its bid significantly to have any chance of succeeding.

``Hilton has to respond to this in some way, and I guess the most direct way is to raise the price,'' said Harold Vogel, an analyst at Cowan & Co. ``But we are in a fluid situation. There is a long way to go yet.''

On the New York Stock Exchange on Wednesday, ITT's stock closed at $57.625, up $1.625. Hilton shares fell 50 cents, to $27.625.

In its rejection of Hilton's offer, ITT added that it would fight the hostile takeover in federal court in Nevada, where Hilton filed a lawsuit to keep ITT from using anti-takeover measures. ITT's defenses include increasing its board to as many as 25 directors from 11, and a so-called poison pill provision that allows shareholders other than Hilton to buy discounted ITT stock.

ITT said it planned to file a countersuit, charging that Hilton misused confidential information from Bally Entertainment Corp. to prepare its offer. Bally held acquisition talks with ITT before it was acquired by Hilton last year.

ITT, which has spun off manufacturing and insurance assets to shareholders over the last two years and is now primarily a lodging and gambling company, added that it was reviewing ``various options,'' including the sale of some or all of its noncore assets.

Those assets include a 50 percent stake in Madison Square Garden, the New York Knicks and the New York Rangers, ITT Educational Services and ITT World Directories, a telephone directories business.

``We plan to deploy our financial resources only to those assets that produce superior current and future earnings growth,'' said Rand Araskog, ITT's chairman and chief executive.