Stock of the Day
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Hilton (HLT)
Hilton Hotels Sold for $26bn; Shareholders Go On Vacation
Blackstone has checked out of its penthouse suite and the room service bill is eye popping. Less than a week after its $4.1bn IPO, the private equity firm announced that it would purchase Hilton Hotels for $26bn, $6bn of which is debt. The move cedes control of one of the world's largest hotel chains to private equity, and gives Blackstone its choice of 600,000 hotel rooms worldwide. For Hilton shareholders, the buyout offers a hefty 32% premium over the week's earlier close. With Hilton shares trending upward, did the company make a good decision in handing the keys over to someone else?
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Is Blackstone investing in a sick horse? While shares of the hotel group had declined 3% so far in 2007, they had been trending upward for seven years. Since 2000, shares have climbed from $9.5 to $34 (257%), and the company had been busy creating international partnerships. In March it sold off its Scandic Hotel chain for $1.1bn, and sold 10 hotels to Morgan Stanley's (MS: Charts, News, Offers) real estate division for $770m. Despite the big sales, the company announced a 9% drop in profit this past April., While renovation costs weighed down on the numbers, revenue had increased and the overall figures looked strikingly similar to competitors Marriott (MAR: Charts, News, Offers) and Starwood (HOT: Charts, News, Offers). In late May the company tapped COO Matthew Hart as the new CEO, replacing retiring Stephen Bollenbach, and in June Hilton announced deals to create 55 new hotels over the next five years.
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The bigger question is whether or not the deal was good for Hilton investors. If the stock had been trending upward and new deals were being forged to expand the group's hotel base, why sell? The answer: share premium. Blackstone was willing to pony up more than a 30% premium (25% over its all time high) for the company, and that simply was too sweet an offer to ignore. The deal looked so good that the company jumped right on it, and now must fork over $560m it a better offer comes along. The Hilton family, trustees to the William B. Hilton Trust, own 20% of the company and stand to gain $900m out of the deal.
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What will Blackstone do to Hilton? For one, it is unlikely that the company will be dismantled and sold for scrap. Hilton has done better than its competitors over the past five years, and had been forging ahead with several big deals to expand its international reach. For the public, however, the deal marks the end of the road. Unless a bigger fish comes along that wants to take control - and pay the $560m penalty to Blackstone - private equity is on the verge of snagging the second largest hotel group in the US.
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Profile |
The Company's principal activities are to own, manage and develop hotels, resorts and timeshare properties and franchise lodging properties. The Company operates in three business segments: Hotel Ownership, Managing and Franchising and Timeshare. At 30-Sep-2005, the Company's system contained 2,357 properties & 370111 rooms. The hotel brands include Hilton, Hilton Garden Inn, Doubletree, Embassy Suites, Hampton, Homewood Suites by Hilton and Conrad. In addition, the Company develops and operates timeshare resorts through Hilton Grand Vacations Company and its related entities. The Company has hotel properties in Belgium, Egypt, England, Hong Kong, Ireland, Mexico, Puerto Rico, Singapore, Thailand and Turkey and franchised hotel properties in Canada, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Peru, Puerto Rico and Venezuela.
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