Hilton Nears Merger, Launches Luxury Hotel Brand

Hilton Hotels Corp. last month took its biggest step toward reunifying with its U.K.-based namesake with an agreement signed in the last days of 2005 to acquire the lodging assets of Hilton Group plc. The deal—subject to a nod from shareholders, governmental clearances and the securing of more than $5.5 billion in funds—is expected to close late next month or in early March, Hilton Hotels Corp. president and COO Matt Hart said last week.

The reattachment of its international arm—severed for more than 40 years—adds more than 400 hotels to the portfolio of Hilton Hotels Corp., which upon completion "will be the largest and most geographically diverse lodging company in the world, with nearly 2,800 hotels and 475,000 rooms in 80 countries," Hilton said in a statement.

The two entities in recent years have grown closer together, merging sales and marketing initiatives for multinational corporate customers and even forming a joint venture to launch a luxury brand, Conrad Hotels. Other hallmarks of Hilton's hotel network—its Hilton HHonors frequent guest rewards program and Hilton Reservations Worldwide—also were shared ventures between the companies.

However, Hart told Business Travel News there still is room to add efficiencies once the deal closes, primarily with its customer-information system. "The big thing that we need to do is put our OnQ system in place at their hotels and that will take about 18 months," Hart said. "The salesforce is already combined, but we think there may be some opportunities in some of the geographic areas where they have to consolidate some functions. Really, this deal is less about cost synergies than it is about revenue synergies." However, Hilton Hotels Corp. said it expects to realize approximately $30 million in annual cost savings following the merger.

In addition to immediately adding properties that give Hilton a significant international reach, the company also is poised to globally expand its brands, both in the high-end and limited-service categories. On the high end, Hilton Hotels Corp. last week announced the launch of The Waldorf-Astoria Collection, a new luxury brand that will build on the reputation of the storied New York hotel.

"Just merging the companies, combining the companies and getting the uniform operating system on its own is a fair value for our shareholders," Hart said, "but the opportunity to take the limited-service brands and now the Waldorf-Astoria brand is something extra that comes with the deal."

Hart said Hilton is working to expand the new brand by cobranding existing luxury or boutique hotels and converting high-end Hilton and Conrad properties, as well as through new builds. Noting that Hilton did not want to be "limited by geography," Hart said the Waldorf initiative was a good fit with Hilton's realignment efforts.

Meanwhile, brands established in the United States, but scarce elsewhere, now are ready to make global gains through the deal, Hart said.

"The big opportunity for us is to take some of our proven brands—Hilton Garden Inn, Embassy Suites and Doubletree—to different places of the world," Hart said. "We think there are opportunities for new builds in certain parts of the world like India, China and Brazil, and we think there are opportunities for conversions in markets like the U.K. and Western Europe."

Yet, even without further expansion of brands in the United States, Hilton noted that both entities at the time of the agreement already had a significant number of deals in the pipeline. "The current Hilton International development pipeline consists of signed contracts for 58 hotels with 14,000 rooms," the company said in a statement in late December. "Hilton Hotels Corp.'s development pipeline currently consists of 520 hotels and approximately 64,000 rooms."

Once aligned, the combined company will be headquartered in Hilton Hotels Corp.'s current home of Beverly Hills, Calif. Stephen Bollenbach, Hilton Hotels co-chairman and CEO, Robert La Forgia, senior vice president and CFO, and Hart as well as "the remainder of the HHC senior management team" will maintain their current positions.

Meanwhile, Ian Carter, currently chief executive of Hilton International, will become executive vice president and CEO of Hilton International.

In 1964, Hilton Hotels Corp. spun off its international business to shareholders. Following years of ownership changes, the Ladbroke Group acquired the business in 1987. A decade later, Bollenbach initiated the joint venture with Hilton International. "As the alliance developed, benefiting both companies and our millions of global customers, we always envisioned the formal coming together of Hilton's U.S. and international businesses," Bollenbach said in a statement upon the signing of the agreement. "The enthusiasm of both companies' boards of directors for making the new worldwide Hilton Hotels Corp. a reality has been a key element in this transaction, which we are confident will bring value to our guests, our team members, our owners and our shareholders for years to come."