Hilton Hotels Officially Puts Itself Up for Sale : Analysts Say Deal for Inns and Casinos Could Draw Bids as High as $6.5 Billion
After months of speculation, Hilton Hotels Corp. on Thursday officially put itself on the auction block in a move that analysts say could result in a $6.5-billion sale.
In a brief statement, Hilton said its directors had given financial advisers Shearson Lehman Hutton and Eastdil Realty the green light to contact potential bidders for the entire company or for its hotel chain. Hilton also said it would consider spinning off its casino properties.
“We have had many expressions of interest,” said William C. Lebo Jr., Hilton’s general counsel. Prospective suitors will be supplied with financial information on the company in early September, he said.
Potential buyers of the 270-hotel chain, which includes world-class properties such as the Waldorf-Astoria in New York and a trio of lucrative Nevada casinos, would most likely include Japanese and European investors, analysts said.
“The Hilton name is as recognizable as Coca-Cola all over the world,” said analyst Marvin Roffman at Janney Montgomery Scott, a Philadelphia brokerage firm.
Investors Disappointed
The announcement comes three months after Chairman Barron Hilton told shareholders at the annual meeting that the company was not actively seeking a buyer but would consider offers. Hilton, son of founder Conrad Hilton, had recently gained voting control of 34% of the company’s shares, and analysts have speculated that he was unhappy with the stock price.
Hilton shares were trading at about $65 a share when Hilton made his comment. On Thursday, Hilton shares on the New York Stock Exchange closed at $108, down $3.875. Traders said many investors were disappointed that a rumored offer for the company did not materialize.
With about 47.8 million shares outstanding, Hilton is valued at about $5.2 billion at the current market price. Analysts estimates of a $6.5-billion transaction would indicate that a potential purchaser would pay about $135 a share.
Even at current levels, Hilton’s stock price probably falls short of reflecting the true value of the company’s assets, including its gaming operations and real estate holdings, analysts said.
Hilton owns 12 hotels outright and an interest in several others. Analysts said the value of such real estate holdings have triggered many of the recent industry takeovers and acquisitions. Real estate is typically carried on a company’s books at the original price and does not reflect any appreciation.
“There is interest in any company that has a significant amount of real estate holdings,” said Scott Paschall, a hotel industry consultant with Pannell Kerr Forster, an accounting firm. Hotels are not considered as risky an investment as other businesses because “a lot of these hotels have quite a bit of real estate,” he said.
Attractive Properties
Besides real estate, Hilton’s gaming operations are expected to draw attention. The gaming operations of its three Nevada hotel-casinos--the Las Vegas Hilton, the Flamingo Hilton and the Reno Hilton--and other properties in Australia accounted for 53% of Hilton’s 1988 operating income.
“Their casino properties are very attractive to a lot of the purchasers out there,” said Paschall.
Asian investors have been particularly active buyers of hotel chains in recent years. Early this year, Phoenix-based Ramada sold its hotel chain to a Hong Kong real estate firm for $540 million to concentrate on gaming. Last year, the Inter-Continental chain was sold to a Japanese company for $2.27 billion. Earlier, a group that included Aoki Corp. of Japan and a group led by Robert M. Bass of Ft. Worth purchased Westin Hotels for $1.5 billion.
HILTON AT A GLANCE 1988 Revenue
Revenue % of Segment (in millions) total Hotels $1,462.0 68 Gaming 695.3 32 Total $2,157.3
1988 Operating Income
Income % of Segment (in millions) total Hotels $115.1 47 Gaming 128.6 53 Total 243.7
Breakdown of Hilton Corp. properties: Wholly owned: 12 Partially owned and managed: 13 Managed: 21 Franchised: 225
