Translated material
Five star deal
Hilton hotel chain to be sold for $26 billion
Hilton Hotels Corporation announced the sale of its hotel empire to the Blackstone Group investment fund. The deal, worth approximately $26 billion, is in its final stages and promises to be one of the largest in the hotel business. Linda Bain, vice president for international communications and public relations at Hilton, told Vremya Novostey that in connection with the sale of the hotel chain, “Hilton’s development strategy and plans in Russia will remain the same.”The Hilton chain is named after the American Conrad Hilton. It was he who first came up with the idea of assigning stars to hotels (by analogy with cognac) and was the first to begin selling in the lobbies of his hotels everything that clients might need, and offered a standard set of services. Mr. Hilton believed that the entire hotel space should generate money.
Hilton Hotels, which operated exclusively in America and Mexico for more than 40 years, bought 400 hotels worldwide from the British Hilton Group in 2005 for $5.7 billion, thereby ending the brand split. In addition to hotels of the same name, Hilton Hotels Corporation includes the international chain Waldorf-Astoria and the American chain Conrad Hotels. The company owns about 2,800 hotels in more than 80 countries - a total of 480 thousand rooms. The Blackstone investment group owns, in particular, the La Quinta Inns, Luxury Resorts and Hotels chains. And in April, the company bought the Extended Stay Hotels chain for $8 billion from the American company Lightstone Group, LLC. In total it has approximately 100 thousand numbers. Thus, as a result of the transaction, Blackstone will become the world's largest hotel owner.
Blackstone Group is ready to buy the chain along with all of Hilton's credit obligations, which amount to $7.5 billion (while Hilton's net profit in the first quarter of this year decreased by 9% compared to the same period last year, to $95 million, and revenue increased by 29%, to $1.86 billion). Moreover, under the terms of the deal, $47.5 will be paid in cash for each share of Hilton Hotels Corporation. It is expected that the deal will be completed in the fourth quarter of this year, if, of course, Hilton shareholders approve the corresponding agreement. "Hilton recommends that its shareholders accept Blackstone's offer because it is willing to pay them 40% above the market price for each security," Ms. Bain said. In turn, Blackstone Group Managing Director Jonathan Gray said: “It’s hard to imagine a better strategic move for us than Hilton.” As you know, Blackstone is one of the largest players in the market for the buyout of public companies by private investment funds: since its founding in 1985, the company has spent $160 billion on acquisitions. As Mr. Gray noted, the acquisition of Hilton is aimed at creating a leading global company specializing in the hotel business. Blackstone declined to talk in more detail about its development strategy. "As long as this is the company's intention, we must wait until the deal is completed," said Sophia Harrison, vice president of public relations for the company.
According to many Russian experts, the deal announced yesterday is unlikely to affect Hilton's expansion into Russia. Last year, the company entered into a franchise agreement with Sadko-Hotel, the owner of the Leningradskaya Hotel. It is expected that after restoration, Hilton Moscow Leningradskaya will begin operating at the end of this year. A month ago, Hilton Hotels Corp signed an agreement with London & Regional Properties Ltd. on the construction of a number of hotels in Russia. Then the company announced that it would not only focus on Moscow and St. Petersburg, but would also implement more than 30 projects by 2012 in a number of large regional centers with a small number of hotels under foreign brands. It is planned that the construction of hotels in Russia will be financed by London & Regional Properties Ltd., and Hilton will manage the business. Hilton has a fairly strong long-term relationship with London & Regional Properties Ltd, as the latter owns hotels under its brand in London and Frankfurt. All these circumstances indicate that Hilton's plans are unlikely to change in connection with its sale.
Alexander Kulagin, representative of the London & Regional Properties investment fund in Russia, noted that “Blackstone Group is the largest private fund in the United States, and it would be nice to cooperate with it.”
Recently, large hotel operators have been trying to sell real estate and remain in management positions, market experts note. This is due to the fact that they do not want to share the risks of owning real estate, as well as invest in the modernization and support of facilities. However, many investment funds are ready to buy real estate in order to increase their assets and increase capitalization. “It is worth noting that the sale of Hilton Hotels Corp. “Over the past six months, this has become the third transaction involving the acquisition of major hotel companies by private investment funds,” says David Jenkins, director of Horwath HTL Russia, specializing in hotel consulting. -- Previously, such deals were announced in relation to Four Seasons Hotels and the symbol of Canada - the Fairmont group. We should probably expect more similar acquisitions in the near future.”