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CASE ON ACQUISITION OF HILTON GROUP BY BLACKSTONE
About Hilton Group
Hampton Inn & Suites®. with more than 2. Hampton Inn®. Among its industry firsts. amenities and service.S. Homewood Suites by Hilton® and The Waldorf=Astoria Collection®. Embassy Suites Hotels®. Hilton Hotels Corporation (NYSE:HLT) is the leading global hospitality company.800 hotels and 480. Hilton Grand Vacations. Hilton's expertise and insight of global travel remains unmatched. manages or franchises a hotel portfolio of some of the best known and highly regarded brands. coast-to-coast hotel chain.Hilton Hotels & Resorts (formerly known as Hilton Hotels) is an international chain of fullservice hotels and resorts founded by Conrad Hilton in 1919. After more than 90 years. introduced the first multi-hotel reservation system and became the first U. Doubletree®. Hilton Garden Inn®. including Hilton®. Hilton remains synonymous with hotel because of its innovative approach to products.000 rooms in 76 countries and territories. individual Hilton hotels always lead the way. About Blackstone Group .000 team members worldwide. including 100. Hilton developed the concept of franchising hotels. Conrad® Hotels & Resorts. launched the first airport hotel. Whether becoming the first hotel to install televisions in guest rooms or the first hotel in the world to earn both LEED and Green Seal environmental certifications. The company owns.
including mergers and acquisitions advisory. Blackstone has completed investments in such notable companies as Hilton Worldwide. Kuhn. Blackstone completed a $4 billion initial public offering to become one of the first major private equity firms to list shares in its management company on a public exchange. proprietary hedge funds and closed-end mutual funds.The Blackstone Group (NYSE:BX) is a leading global alternative asset manager and provider of financial advisory services. United Biscuits. Freescale Semiconductor and Travelport. Equity Office Properties. Blackstone has invested approximately $1 billion in redevelopment capital in its LXR properties over the last three years. restructuring and reorganization advisory and fund placement services. In 2007. Apria Healthcare. Schwarzman. real estate opportunity funds. Since inception. Blackstone has evolved into one of the world's largest private equity investment firms. AlliedBarton. Its alternative asset management businesses include the management of corporate private equity funds. The firm was founded in 1985 as a mergers and acquisitions boutique by Peter G. Europe and Asia Blackstone's private equity business has been one of the largest investors in leveraged buyout transactions over the last decade while its real estate business has been an active acquirer of commercial real estate. senior debt funds. The Blackstone Group also provides various financial advisory services. Over the course of two decades. with more than a dozen additional offices in the United States. who had previously worked together at Lehman Brothers. it has also grown the La Quinta brand by approximately 45% since its acquisition in January 2006 ISSUES IN THE DEAL . Blackstone is headquartered at 345 Park Avenue in New York City. Peterson and Stephen A. Republic Services. funds of hedge funds. Loeb Inc. mezzanine funds.
y Under the terms of the agreement. Blackstone currently owns more than 100. Hilton said in a filing with the Securities and Exchange Commission. y The acquisition brings together a leading global hospitality company with Blackstone¶s extensive portfolio of hotels and resorts. y Over the last fifteen years.S. But only weeks later. culminating in the financial crisis of 2008.y y Hilton Hotels was acquired by the Blackstone Group on October 24. Blackstone Group has reached an agreement to restructure the balance sheet of Hilton Worldwide as it looks to improve the flagging fortunes of its single largest investment. UBS Investment Bank and Moelis Advisors acted as financial advisors to Hilton. allowing for ever-bigger leveraged buyouts. ranging from limited service properties such as La Quinta Inns and Suites to LXR Luxury Resorts and Hotels. and Europe. Blackstone has been the largest private investor in hospitality worldwide and it has a strong track record of reinvesting in its hotel properties. y Blackstone will pay Hilton $660 million if it backs out of the deal. and Sullivan & Cromwell LLP acted as legal advisor to Hilton.000 hotel rooms in the U. would cut Hilton¶s debt burden to about $16 billion from $20 billion. Blackstone will inject an additional $800 million of capital to buy back Hilton¶s debt at a discount. y Simpson Thacher & Bartlett LLP acted as legal advisor to Blackstone. y Hilton said that it must pay Blackstone Group $560 million if it receives a better offer and terminates a takeover agreement with the private equity firm. 2007 for $26 billion The deal. would help bolster the hotel operator at a time when the travel industry is suffering from fewer customers. the markets were awash in cheap debt. FORM OF AQCUISITION . y When Blackstone agreed to acquire Hilton ² operator of the Waldorf-Astoria and hundreds other hotels worldwide . The maturities of some of Hilton¶s debt will also be pushed back. the credit markets began to shake.
A leveraged buyout may also be referred to as a hostile takeover. or a bootstrap transaction. This transaction was about building the premier global hospitality business. The companies valued the deal at $26 billion including debt. y Financing commitments have been provided by Bear Stearns. The Board of Directors concluded that this transaction provides compelling value for their shareholders with a significant premium. Deutsche Bank.000 hotels in 80 countries with 620. FINANCING THE DEAL y The private equity group combined cash from its real estate and corporate private equity funds to buy all outstanding Hilton shares for $47. Typically.A leveraged buyout is a tactic through which control of a corporation is acquired by buying up a majority of their stock using borrowed money. a 32 percent premium over the July 3 closing stock price. Morgan Stanley and Goldman Sachs. brands and network of hotels.000 rooms. making it the world's largest hotelier by number of rooms. leveraged buyout uses a combination of various debt instruments from bank and debt capital. These institutions also served as financial advisors to Blackstone. y Acquiring Hilton was the best strategic fit for Blackstone since Hilton had its world-class people. franchisees and customers. With the Hilton buyout. sometimes with assets of the acquiring company.50 each.Leveraged buyout. y Blackstone intended to invest in the Hilton properties and brands globally to enhance and grow the business for the benefit of owners. Bank of America. a highly-leveraged transaction. BENEFITS TO BLACKSTONE y With this deal Blackstone would become the world's largest hotel owner. Blackstone owns some 4. The assets of the acquired company are used as collateral for the borrowed capital. . y Blackstone¶s priority was always to maximize shareholder value.
y For Blackstone group a brand even a household name with global reach and a long history of quality and integrity was enough to overcome poor performance. Biggest Hotel Deal in History Blackstone . BENEFITS TO HILTON y y Hilton shareholders received $47. financial distress and legal troubles Hilton was a tremendous global brand that would recover with the economy even though it was under high debts. would cut Hilton¶s debt burden to about $16 billion from $20 billion.50 per share from the buyout(40% more than the market value of the shares when the acquisition was announced) y The deal. would help bolster the hotel operator at a time when the travel industry is suffering from fewer customers.
Blackstone announced today that it is buying Hilton Hotels Corporation in a $26 billion deal. Instead. We will talk about that shortly. She may not have to worry about the cost anymore! Her Granddaddy's company has just been sold for $26 billion. La Quinta for $3. It also provides further confirmation of the prediction I made a number of months ago that "the entire industry is now on the block.25 billion) and by other private equity players such as Morgan Stanley which recently acquired CNL in a record-setting $6. MeriStar for $2. "Get a driver!'" Fresh out of a jail after serving 23 days of a 45-day jail sentence for probation violation following an embarrassing series of drunk driving and driving without a license offenses." Let's take a further look at the details and background. and other stakeholders in the hospitality industry.Buys Hilton for $26 billion By Jim Butler.2 billion. and his share is $990 million! REWIND.HotelLawBlog.4 billion.6 billion only a few months ago. Boca Resorts for $1.6 billion. Blackstone buys Hilton for "only" $26 billion -. this deal is merely the latest in a long string of huge acquisitions by Blackstone approaching more $100 billion in the last 5 years (including ESA/Extended Stay America for $8 billion.THE BIGGEST HOTEL DEAL IN HISTORY. I decided to go with my more usual "hotel attorney and advisor" approach and will lead with this: As if in a real world re-enactment of the nursery rhyme about 10 little Indians (or the 1945 Agatha Christie movie "Until there were none" *). And in case you and Rip van Winkle have just awakened from your slumber. the insolent (now reformed) Paris Hilton should just get a driver.com 3 July 2007 I almost entitled this blog: "'Paris Hilton. What's so important about this acquisition? It portends and unprecedented consolidation of the hospitality industry with potentially staggering consequences to hotel owners. guests. Hotel Lawyer | Author of www. . Wyndham for $3.
recently released from jail after a 45day sentence for parole violations relating to drunk driving and driving without a license. nor do any more reality TV shows. Blackstone Group and Hilton Hotels Corp. co-chairman of the company and son of founder Conrad Hilton.700 hotels with 290. Hilton acquired Promus Hotel Corporation in a major industry acquisition valued at $4. Founded 88 years ago with a single property in Cisco. is Barron's granddaughter. Conrad Hilton took the company public in 1946. through co-marketing and other arrangements. She won't have to drive herself anymore. Red Lion and Embassy Suites brands. after a number of parries and thrusts. that brought Hilton 1. Key Hilton transactions.000 hotel rooms worldwide. including the Doubletree.000 rooms.8 million shares. This critical acquisition brought Hilton to 1. Texas in 1925. What does the Hilton-Blackstone deal mean now? I actually LOVE to say it: "I told you so. and helped launch the company to its position today with more than 2.000 rooms in 50 countries. will get approximately $990 million for his 20.a 32% premium over the July 3. . . 2007 closing price.50 for each of their shares -. Size does not matter . including the New York Waldorf=Astoria.900 hotels with approximately 350. Socialite Paris Hilton. Barron Hilton.71 billion. Waikiki's Hilton Hawaiian Village and Chicago's Palmer House. And in 2006. Prior to the Promus acquisition.0 billion. And in 1999. Hilton bought back Hilton Group Plc for $5. Blackstone will pay Hilton stockholders approximately $47. bought the fabled New York Waldorf=Astoria in 1949. at least in the hotel industry. announced the sale of Hilton to Blackstone for $26 billion. but spun off Hilton International with all the foreign assets in 1964.800 hotels and 480." . finally reuniting the Hilton brand worldwide. This is the biggest acquisition of a hotel company in history. Hampton Inn. managed or franchised hotels. Hilton had only 275 owned. Hilton went public in 1946. 2007. Texas and then the first "Hilton" in Dallas.On July 3.
the largest hotel REIT. and why Marriott. 2007 blog ("Size no longer matters .In my January 29. and said that "even Hilton is now on the block. one of the most highly respected analysts covering lodging. While size may matter to some.that every major hotel company could be in play" (citing my contemporaneous January 29 blog about "Two deals that may change the lodging world forever") I said. while Host Hotels. said that until recently. and all the other hotel companies could be up for grabs. "Here's why size may no longer impose any limit on acquisitions. y y y y y y The $100 billion barrier is broken. were generally considered too big to be acquired by private equity firms despite their strong interest in the lodging sector." I mused that "the CNL and EOP deals [are] the harbinger for the entire hotel industry -. at least in the hotel industry. as a hotel attorney and advisor. that I would like to recall here. Starwood. . . . the larger hotel companies. a Principal of Green Street Advisors. . By comparison.each have total enterprise values ranging from "only" $18 to 30 billion. They are highly relevant to the Hilton-Blackstone buyout and. Here is what I said on January 29 of this year: y The InterContinental Hotels Group is reportedly in play. The Blackstone-EOP deal at almost $40 billion was (in January) the largest private equity buyout in history. Hilton. size no longer seems to be a deterrent to taking the large public hotel companies private given the flood of capital currently being raised by private equity firms. the largest hotel C-Corps -. Is the entire hotel industry now in play?") I made a few observations. Marriott and Hilton -. Arabia. they emphasize what I think the Hilton-Blackstone transaction means for the entire hotel industry.such as Starwood. has assets valued at roughly $20 billion. including both the large hotel C-Corps and REITs. John V." And those reasons are more valid today (if possible) than in January. .
There are almost unlimited amounts of capital looking for a "home" or place to invest. Anything could be next. But why would they bother? y The short answer is that the lodging industry has experienced record profit growth the past three or four years. John Arabia describes this as "the current disconnect between public and private pricing for hotel real estate. Why are hotels so popular? OK. That is likely to lead to more private equity leveraged buyouts. "Hotel Financing looking at a new benchmark -. and cap rates -.still look very attractive compared to other real estate types and other industries. raising capital is something a commodity business -. And this deal is bigger that the total value of the entire hotel industry. And the private equity capital is now being put together in amounts previously unimaginable. (See.it does not matter what the capital is for. after the Royal Bank of Scotland Group Plc announced its bid to buy ABN Amro Holdings for US$103 billion (76 billion euros). This means that hotel companies and hotel properties appear to be a bargain to private equity investors. So the private equity guys could buy all the hotel companies if they wanted to. y y ." Nothing was "too big" any more. the capital raising machine has surpassed all the old limits.although near historic lows for the hospitality industry -. the cherry was broken on the fabled "$100 billion barrier. Although the Royal Bank of Scotland bid for ABN Amro does not involve any hotels. 2007 blog that no company in the hotel industry is worth more than the Equity Office deal completed earlier this year.The $100 billion deal." John notes that on average. That means that private-market hotel buyers are willing to pay more for properties than institutional investors in public hotel REITs. public hotel REITs have recently traded at high-single-digit to low-double-digit discounts to Net Asset Value (NAV).") I noted in my April 25.Then in April.
Hyatt. . there in no C-Corp hotel company (Marriott. ) with a value y . . InterContinental . he said. and the rest of the hotel industry may be Blackstone's (or some other private equity player's) desert . Paris Hilton probably won't have to sell or mortgage her inheritance to hire a driver and avoid future drunk driving charges ." So is everyone really on the block? YES! YES! YES! What are the implications? There are a number of important implications. Hilton. Blackstone has gobbled up almost $100 billion in hotel assets over the past 5 years. with values based on market capitalization. . What's most important to you? y With her grand father getting $990 million from the deal. including: o o o o o y y y Hilton ESA MeriStar LaQuinta Boca y Other equity funds such as Morgan Stanley and Goldman Sachs seem to like hospitality too. President and CEO of Host Hotels & Resorts. You are seeing transactional activity that rationalizes this mismatch. Christopher J. . .y Earlier this year. As I said in January. Nassetta. Starwood. . "There is a fundamental mismatch of valuations in public and private markets. but that is another story . . China now owns Hilton (or at least close to 10% of the recent Blackstone offering) . . . . if she gets anything from the estate at all . Commenting on the CNL and EOP transactions. with recent acquisitions including CNL for $6. said it slightly differently.6 billion. . Blackstone has acquired almost $100 billion of hotel assets in the last 5 years. .
which he then dismantles to sell by the part -. That's what some think happened to Hilton's purchase of Promus with the rearrangement of Hiltons and Doubletrees. We have heard rumors about Marriott. and the like -. this sounds like a classic car buyer purchasing a fine. y WHAT HAPPENS WHEN ALL OF THE MAJOR HOTEL BRANDS ARE OWNED BY ONE OR TWO OWNERS? Are the new owners really long term owners or just "financial wizards" ready to dismantle and sell the pieces? y What does this all mean? The concentration issue is a big one. Host and a lot more. The industry still looks cheap to abundant capital.greater than $20-30 billion. a lot of players have claimed they were buying a company for "long term investment" -. doors. Strategic Hotels. To some. Starwood. InterContinental. the largest REIT has a market cap of only $20 billion or so. Will there be only one or two hotel companies to negotiate your management or franchise agreement with? Is there any competition to keep hotel rates fair for consumers? Will hotels be able to maintain quality standards for their brands or will MBAs be using their HP calculators to determine how much quality they can afford to deliver for the investment? Have you noticed how hotel prices and rates seem to go up after every billionaire or equity fund buys it -. and even Host Hotels. the sell off of Red Lion and other "repositionings" or the dismantling of Wyndham by Blackstone after its purchase last year. vintage automobile to own "forever". Orient Express.presumably to justify the latest outrageous price paid for the property? Have you worried about how the big buyers don't seem to invest any money to update or maintain the property where they just doubled the rates? Dismantling the industry? But more than that. The industry is in play.as has Blackstone on the purchase of Hilton. hood ornament. . carburetor.piece by piece. There will be lot more on this deal and these issues in the near future.wheels.
. that suspect person is always the person murdered next.We will see how it plays out. N. Own. . At last only two people seem to be left... then the next. At dinner a record is played. . We've done more than $40 billion of hotel transactions and more than 100 hotel mixed-used deals in the last 5 years alone. This is Jim Butler. author of www.HotelLawBlog. but he isn't on the island. by which all the people are accused of murder. ." 10 people are invited for a weekend on an island by a Mr U. Suddenly the first of them is dead. And just as it seems clear that that one of them is the murderer. until . . signing off.com and hotel lawyer. Who's your hotel lawyer? * In the Agatha Christie classic. "Then there were none.