Will Blackstone's Hilton Deal
Put Other Hotels in Play?
With Blackstone Group's agreement to acquire Hilton Hotels Corp. for $20 billion in cash, acquisitive private-equity buyers have finally cracked the Big Three of U.S.-based publicly held hotel giants -- and instantly raised the question of whether Marriott International Inc. or Starwood Hotels & Resorts Worldwide Inc. might be next.
The Hilton deal also highlights a new reality in the buyout world: Some private-equity giants have amassed so many assets in certain sectors that they are behaving like strategic investors rather than calculated short-term buyers.
Blackstone already controls more than 100,000 hotel rooms in the U.S. and Europe through its ownership of LaQuinta Inns and Suites and LXR Luxury Resorts & Hotels. In the last three years, Blackstone has acquired $15 billion in hotel assets. By adding Hilton, one of the industry's most storied names, Blackstone takes on a major, long-term business commitment.
Hilton's portfolio of hotel brands includes the flagship Hilton chain as well as Embassy Suites, Doubletree, Hampton Inn and the luxury Waldorf Astoria collection -- 2,800 hotels and more than 480,000 rooms world-wide. Blackstone will be able to deploy Hilton's loyalty program, reservations system and other services at its other properties, and may convert some to Hilton brands.
Blackstone will pay $47.50 a share, a 40% premium to Monday's closing price of $33.87, and assume $6 billion in debt. Hilton's stock was up more than 6% Tuesday before the deal was announced and was 6.4% higher to $36.05 in 1 p.m. composite trading on the New York Stock Exchange in a shortened, preholiday session. A company spokeswoman declined to comment on the stock activity.
Hilton was officially founded in 1946 as Hilton Hotels Corp., but the first hotel run by founder Conrad Hilton was the Mobley Hotel in Cisco, Texas, in 1919. He built the company into a global concern before it split apart in 1964. His son Barron Hilton, 79, remains its co-chairman and reports to the office nearly every day.
As of March 29, the family was the company's second-largest shareholder, through the Conrad N. Hilton Fund, controlling about 5.3% of shares outstanding. Should the proposed transaction proceed, the stake will be worth about $990 million.
"We've believed for a while that one of the major hotel companies was going to go private," said analyst Robert LaFleur of Susquehanna Financial Group. He said he still sees Starwood as a potential target.
Indeed, Starwood has been in flux since then-CEO Steve Heyer resigned in April. Its shares, which have been jumpy, rose almost 3%, or $2, Tuesday to $69.13 in NYSE trading. In the past, Starwood officials, including interim Chief Executive and Chairman Bruce Duncan, have said the company isn't seeking to be sold.
Marriott shares have ticked up in recent weeks amid buyout rumors. But 75-year-old Chairman and CEO J.W. "Bill" Marriott Jr., whose family controls the company, shows no signs of slowing down or selling.
The proposed Hilton transaction comes more than a year after Hilton paid $5.7 billion to acquire the lodging unit of Hilton Group PLC, reuniting the domestic and international Hilton brand names for the first time in years. Since 2005, Hilton has sold roughly $4.8 billion in hotel and health-club properties in an effort to become "asset light."
Like its peers, Hilton focuses on making money through management fees it charges third-party owners to operate the hotels. Now the company is planning to expand some of its U.S. brands overseas in two categories -- select-service hotels such as Hilton Garden Inn and luxury properties such as Waldorf.
"I think Blackstone embraces our strategy, and they're looking at this as an opportunity to grow," said Stephen F. Bollenbach, Hilton's co-chairman and chief executive.
Mr. Bollenbach is stepping down as CEO at the end of the year. He was to be succeeded by Matthew J. Hart, president and chief operating officer. Mr. Bollenbach said it is uncertain what role Mr. Hart will play after the deal is completed.
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