The Blackstone Group is set to acquire Hilton Hotels Corp. after the hotel's board of directors last week approved a $26 billion offer from the equity giant. Industry analysts said the deal likely foreshadows further ownership changes in the hotel industry and presents the already considerable portfolio of Hilton brands the opportunity for accelerated expansion.
Pending shareholder and regulatory approval, the acquisition will be completed in the fourth quarter, according to the companies. Blackstone, which already owns more than 100,000 hotel rooms in the United States and Europe following a string of acquisitions in recent years, including Wyndham International, MeriStar Hospitality, La Quinta Corp. and several extended stay brands, in a release said Hilton is an "important strategic investment" and that "no significant divestitures are envisaged as a result of this transaction."
"This transaction is about building the premier global hospitality business," Blackstone senior managing director Jonathan Gray said in a prepared statement. "We are committed to investing in the company and working with Hilton's outstanding owners and franchisees to continue to grow and enhance the business."
Speculation of a Hilton buyout had intensified since the 2,800-property chain acquired its international namesake in a $5.5 billion deal completed last year
(BTN, Jan. 23, 2006). That merger catapulted Hilton's revenues to third-highest in the industry, behind only InterContinental Hotels Group and Marriott International.
"Obviously, it's hard to think of a bigger deal than this one," said Sean Hennessey, president of New York-based Lodging Investment Advisors. "It's a continuing example of the strength of the private equity flow going into the sector."
Hilton, like all major hotel chains, has posted consistently strong financial results since 2004, riding a wave of demand and keeping corporate room rates on the rise. Yet, even as revenue growth has rebounded, overall industry profitability has not shown as dramatic a recovery, Hennessey said, and Blackstone has shown itself to be effective in improving the bottom line.
"Our priority has always been to maximize shareholder value," said Hilton CEO Stephen Bollenbach in a release. "Our board of directors concluded that this transaction provides compelling value for our shareholders with a significant premium. We are delighted that a company with the resources and reputation of Blackstone fully appreciates the value inherent in our global presence, strong brands, industry-leading marketing and technology programs and unique portfolio of hotel properties."
International growth has been a recent focus for Hilton, particularly in bringing its midprice brands to Europe. The company recently launched deals to bring more Hampton, Doubletree, Hilton Garden Inn and Hilton properties to the United Kingdom, for example
(BTNonline, June 12). Ownership by Blackstone could accelerate that plan.
"It gives them the opportunity to make more strategic investments without having to worry about the quarter-to-quarter earnings calls," Lodging Investment Advisors' Hennessey said. "It certainly will help them grow overseas."
Hilton in May said president and COO Matthew Hart would succeed Bollenbach, who plans to retire at year-end, as CEO at the beginning of next year
(BTNonline, May 24). The deal's announcement did not address any aspects of management.
Meanwhile, the deal puts Blackstone in a renewed position of strength within the hotel industry, Hennessey said.
"While Blackstone had a sizable number of assets, it was still very young in terms of being a hotel company" he said. "It has a number of luxury hotels, but even the LXR brand—while it's received some recognition—doesn't have the image or stability of Hilton."
Hennessey said to expect some realignment within the various Blackstone properties once the Hilton collection joins the fold. Blackstone also has made some sizable sales of its properties, most recently when it reached an agreement to sell Extended Stay Hotels—which operates five brands, comprising 683 properties and 76,000 rooms—to private real estate company The Lightstone Group for $8 billion. Analysts said not to expect any immediate sale of any of Hilton's brands, although some said future changes were not out of the question.
"That's today. Of course, they're going to make sure everything keeps stable right now," said Maria Chevalier, vice president of global business intelligence for BCD Travel's Advito Consulting division. "The question is: What are their intentions as a whole, looking forward?"
With corporate travel buyers' requests for proposals process to begin prior to the deal's expected close, it should have no effect on corporate hotel negotiations this year, Chevalier said. Beyond that, it would depend on how Blackstone leverages the Hilton brands with its other properties, she said.
Bjorn Hanson, principal of PricewaterhouseCoopers' hospitality and leisure group, said the acquisition would not mean a price increase for travel buyers. "This is either slightly good news or very good news," Hanson said. "Blackstone shares best practices and systems across brands, so this will make Hilton bigger and stronger. This isn't a case of concentration resulting in higher prices and other unfavorable trends for travelers."
The Hilton purchase also is not the first acquisition in recent years of a major hotel company by equity management firms. In April, Four Seasons Hotels & Resorts shareholders approved a deal to sell the company to a group of investors including Kingdom Hotels International, Microsoft founder Bill Gates' Cascade Investments and the hotel's own founder, Isadore Sharp. Kingdom Hotels also joined with Colony Capital to acquire Fairmont Hotels & Resorts in summer 2006, merging it with the Raffles and Swissotel brands. Analysts, however, said this latest merger could prompt more equity deals.
"You might see some moves on the part of other hotel companies, whether this creates additional opportunities for them or just increases the pressure for them to perform," Hennessey said. "It's hard to underestimate how sizable this deal is."