Hilton Hotels Corp., the second- biggest U.S. hotel chain, agreed to a $20 billion buyout by Blackstone Group LP, ending more than 60 years as a public company.
Blackstone will pay $47.50 for each share, Hilton said in a statement. That's 32 percent more than its closing price yesterday. Barron Hilton, the son of founder Conrad Hilton and co-chairman of the Beverly Hills, California-based company, will get $990 million for his 20.8 million shares.
The purchase is a record for the hotel industry. Blackstone, the owner of the La Quinta lodging chain, joins Apollo Management LP and Texas Pacific Group in targeting hotel companies for their cash flow and real estate. Worldwide, hotel acquisitions more than doubled in the first half of this year, to $81.4 billion.
``It's a classic Blackstone play: the size, the asset class, the management and the brand,'' said Michael Pralle, who ran General Electric Co.'s GE Real Estate unit, with $59 billion in assets, before resigning in June to pursue other interests.
Including the assumption of debt, the transaction totals $26 billion. Hilton, second in the U.S. to Marriott International Inc., has more than 2,800 locations.
Hilton's German shares soared $13.27, or 37 percent, to $49.32 in Frankfurt today. The company's U.S. stock rose $2.18, or 6.4 percent, to $36.05 in composite trading on the New York Stock Exchange before the announcement yesterday. Volume in New York of almost 7.5 million shares was double the three-month daily average. U.S. markets are closed today.
`Exceptionally Cheap'
Shares of European hotel companies rose as the purchase fueled speculation other hoteliers may be targeted. Stock in InterContinental Hotels Group Plc climbed 3.9 percent in London, while shares in Accor SA, Europe's largest hotel company, gained 10.3 percent in Paris.
Hilton ``was an exceptionally cheap stock for a very strong portfolio,'' said Amit Kapoor, an analyst at Gabelli & Co. in Rye, New York, which owns about 5 million shares of the company.
Shares of Blackstone, which went public last month, rose $1.05 to $30.77 in Frankfurt. Blackstone owns more than 100,000 hotel rooms in the U.S. and Europe.
Hilton has ``seen no other bidders,'' said Chief Executive Officer Stephen Bollenbach, 64, who plans to step down this year while remaining co-chairman through 2010.
The chain has more than 480,000 hotel rooms worldwide under brands including Waldorf-Astoria and Doubletree.
Waldorf-Astoria
What started in 1919 as a single property in Cisco, Texas, grew into a hotel dynasty that includes some of the richest people in the U.S. Forbes magazine estimated that Barron Hilton is worth $1.3 billion.
The first hotel with the Hilton name opened in 1925 in Dallas. The company sold shares to the public in 1946, and purchased New York's luxury Waldorf-Astoria hotel in 1949.
In 1964, the company spun off Hilton International, then reunited with it last year by buying the lodging unit of U.K.- based Hilton Group Plc for $5.71 billion.
The acquisition will make Blackstone the world's biggest hotel operator with 600,000 beds, surpassing InterContinental's 558,000, according to Paris-based MKG Consulting. Blackstone, which owns computer travel reservation system GDS Galileo and is seeking to buy Galileo rival Worldspan LP, also has travel Web sites such as Orbitz Worldwide Inc. and travel agency Gullivers Travel Associates.
Blackstone's other hotel assets include MeriStar Hospitality Corp and Wyndham International Inc. In 2004, the buyout firm sold its stake in Savoy Group, owner of London luxury hotels including Claridge's, to an Irish investment group, reaping almost twice its original investment.
Biggest Takeover
The Hilton purchase eclipses the 1998 takeover of ITT Corp. by Starwood Hotels & Resorts Trust for $14.6 billion, including debt.
Hilton's share price before the bid valued the company at 27.95 times earnings, making it more expensive than Starwood at 23.76 times income and Marriott International at 27.61.
Since the end of 2002, both Hilton and Marriott shares have almost tripled as demand for rooms increased and rates rose. Demand growth slowed this year, and revenue per available room, a measure of rates and occupancy, rose 5.1 percent in the first half of 2007, the slowest pace in at least three years, according to Smith Travel Research.
Hilton's 2006 net income climbed 24 percent to $572 million on revenue of $8.16 billion.
The company in May named Matthew Hart as chief executive officer to succeed Bollenbach. It is too early to say what Hart's role would be, Bollenbach said.
No Property Sales
Blackstone said it doesn't intend to make any ``significant'' property sales as part of the acquisition.
The perceived risk of owning Hilton bonds rose in recent weeks. Credit-default swaps based on $10 million of its bonds increased 12 percent since June 19 to $123,125, according to data compiled by Bloomberg. An increase in the five-year contracts, used to speculate on the company's ability to repay debt, indicates a deterioration in the perception of credit quality.
Buyout firms typically pay for acquisitions with borrowed money and use their cash flow to pay off the debt.
``Blackstone has been a very aggressive investor in the hotel industry,'' said Robert LaFleur, an analyst at Susquehanna Financial in Stamford, Connecticut. ``Hilton is extremely complementary to that portfolio.''
Record Fundraising
More than 100 real estate funds may raise a record $69 billion this year, according to London-based Private Equity Intelligence Ltd., a research firm. Morgan Stanley in June raised $8 billion for the largest high-return real estate fund and Goldman Sachs Group Inc. gathered $4 billion for a similar fund.
Blackstone has raised more than $7 billion for a fund that's slated to top Morgan Stanley's when it closes later this year, with about $10 billion of capital commitments.
Financing pledges for the Hilton deal were provided by Bear Stearns Cos., Bank of America Corp., Deutsche Bank AG, Morgan Stanley and Goldman, all of which served as financial advisers to Blackstone. Simpson Thacher & Bartlett LLP offered legal advice.
Hilton was advised by UBS AG and Moelis Advisors, the boutique investment bank opened this week by UBS's former top dealmaker in the Americas, Ken Moelis. Moelis resigned from the Swiss bank in March, though he remained an employee until June 30, after Blackstone began to negotiate its deal with Hilton. He declined to comment.
Sullivan & Cromwell LLP provided legal advice.
source:bloomberg.com
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