Barron Hilton on Hot Seat : Hotels: Analysts say the hotelier acted indecisively and too slowly in auctioning off the chain. The company insists the bids were too low.
For all his penchant for privacy, hotel magnate Barron Hilton in recent years has displayed a remarkable knack for getting himself and his well-known lodging company involved in some high-profile uproars.
As chief executive of Hilton Hotels Corp., the 62-year-old heir to the most famous name in the hotel business is now being criticized for acting indecisively during his recent attempt to auction off his Beverly Hills-based chain.
After eight months of intense effort, Hilton Hotels announced last month that it was no longer for sale--sending the company’s stock into yet another tailspin. The shares, which closed Friday at $54.375, had peaked at nearly $116 last August.
“They moved too slowly,” said R. Maurice Robinson, a senior real estate official in Los Angeles for KPMG Peat Marwick, a consulting and accounting firm that acted as adviser to one would-be buyer. “They missed the (open) window.”
Company officials reply that they simply received offers they couldn’t accept. The issue came to a head last month when Hilton Hotels turned down an offer--believed to be from JMB Realty in Chicago--for about $3.7 billion, or $76 a share, well below what the directors felt the firm was worth.
As one official close to the company said of the board members: “They wanted closer to $100 (a share) but they would have taken closer to $80.”
“None of us felt ($76 a share) was a fair price,” said Leroy A. Judge, head of Hilton Hotels’ investor relations.
Although the Hilton name is well known worldwide for lodging, it’s the company’s real estate assets in the United States and casino operations in Nevada that most interested outside investors.
The company’s most prized properties are the Waldorf-Astoria in New York, the Palmer House in Chicago and the Hawaiian Village in Honolulu. Hilton Hotels’ interest in those three hotels alone is said to be worth $2 billion or more. (The company also has valuable equity interests in the Chicago Hilton, New York Hilton, Capitol Hilton in Washington and the San Francisco Hilton.)
The failed sale attempt represented another setback for Barron Hilton, who has run his father’s famous lodging company for about 25 years with mixed results.
Although admired by many financial observers for his business acumen and steady style, Barron Hilton has also found himself at the center of a continuing controversy over his business methods and labor practices.
Last year, the company lost an expensive discrimination lawsuit after it fired 37 workers en masse at the Las Vegas Hilton, and it lost a bid several years ago to open a casino in Atlantic City largely because of its longtime ties to a reputed mob lawyer. Barron Hilton played a pivotal role in both cases, public records show. (See related story, D2.)
At the same time, supporters say, Barron Hilton has been savvy in real estate matters, and he pushed the firm into the gambling business, which now accounts for a major share of his company’s profits.
Admired or not, William Barron Hilton runs his company very much on his own terms. (He always uses Barron as a first name; it was his mother’s maiden name.) The second son of company founder Conrad N. Hilton, who died in 1979 at age 91, Barron Hilton owns or controls about a quarter of the company’s stock and has no successor in sight.
Unlike his colorful father--who loved to stay out late dancing and whose three wives included actress Zsa Zsa Gabor--Barron Hilton is a quiet family man and avid outdoorsman who escapes most weekends to his ranch in Nevada.
Uncomfortable in the public spotlight, he is said to have once complained that casino regulators in New Jersey were so inquisitive that “they even know what color jockstrap you have.”
Although Hilton declined comment for this story, he did permit his senior staff to be interviewed--executives who presumably have a shot at succeeding Hilton one day as chief executive.
One of the senior executives is Barron Hilton’s younger brother, Eric, who is 56 and has worked at the company since he was 16. Barron’s older brother, Conrad N. (Nicky) Hilton Jr., actress Elizabeth Taylor’s first husband, died in 1969.
Hilton Hotels today is a chain of 271 inns, most of them franchises, whose logo is a familiar sight at the nation’s airports, resorts and major urban centers. Hilton Hotels sold its international operations more than 20 years ago, although there remains a single reservation system for Hiltons worldwide.
The hotel side of the business is undergoing major change. The company has just completed a $1.4-billion renovation program at its best hotels, and it continues to weed out older franchise hotels that are outdated. The obsolete franchise properties are being replaced with all-suite and budget hotels, company officials say.
Hilton Hotels has also re-entered the international market under the Conrad name with agreements to manage hotels in Europe, Australia and the West Indies, and others are being developed in Mexico, Turkey and Hong Kong. Eric Hilton, who heads the international operations and lives in Hong Kong, said 18 more Conrad hotels are in the discussion stage, including one in Moscow.
Barron Hilton is occasionally derided as an executive who got his job as an accident of birth, not talent. Investment analysts and consultants, though, generally view him as an able executive who has scored some impressive achievements during his tenure as chief executive.
For example, Hilton Hotels retained ownership interests in its most valuable hotel properties, while fast-growing competitors were getting out of the real estate business and into simply managing hotels.
As a result, Hilton has retained ownership interests in its most prestigious properties that may be worth $3 billion or more.
“People thought they were nuts at the time, but in hindsight it looks like a good strategy,” said Saul F. Leonard, national partner in charge of leisure activities for Laventhol & Horwath, an accounting and consulting firm.
Barron Hilton also gets the credit for pushing Hilton Hotels into the gambling industry in the early 1970s, when the firm bought what are now the Las Vegas Hilton and Flamingo Hilton from financier Kirk Kerkorian for $112 million. The gaming operations now account for about half of the company’s pretax income.
The current controversy swirling around Barron Hilton goes back to last spring, when he told shareholders at the company’s annual meeting that Hilton Hotels would consider buyout offers. But it was not until August that the company said it was officially for sale--a critical four-month delay that some critics now feel was the deal’s undoing.
That the hotels did not sell was due, in large part, to bad timing. Had the company been put up for sale a year earlier, when big hotel transactions were hot, Hilton Hotels would have probably fetched $6 billion or more, real estate experts say.
But last fall’s collapse of the junk bond market and tightening of bank credit after a precipitous stock market drop combined to make it far more difficult for investors to raise the money for the sale.
Would-be Japanese investors also backed off after the U.S. outcry that arose last October when Mitsubishi announced that it was buying a majority interest in Rockefeller Center in New York.
Conventional mortgage financing, when applied to the Hilton Hotels properties, could raise only about $3.25 billion, according to Robinson, whose firm--Peat Marwick--represented a would-be bidder whom he declined to name.
Besides JMB Realty, the other bidders included wealthy private investors, such as oilman Marvin Davis and financier Alfred A. Checchi. None of the bidders would comment on their actions, and Hilton officials declined specific comment on their negotiations.
According to Robinson, the first bids ranged from $3.5 billion to about $5 billion, with most offers coming in around $4 billion. Hilton officials initially felt that the firm was worth well more than $5 billion, or more than $100 a share.
According to Robinson and others, Hilton Hotels wasted valuable time in getting sale materials to investors and in calculating ways to minimize the tax impact of any sale. But the longer Hilton Hotels delayed, the less investors were willing to pay as the real estate market softened and financing sources dried up.
Although Hilton Hotels is a steady moneymaker, profits have not risen that much in the past 10 years and actually fell 16% to $110 million in 1989, when revenue totaled $1.5 billion. (The company had earned $106 million in 1980.)
The earnings drop came at an awkward time because it made the hotels less attractive to investors, sources close to the deal said. Gaming profits slid in 1989, accounting for 44% of operating income, down from 53% the year before.
The company blamed the drop on lower gambling winnings, a falloff in convention business at the Las Vegas Hilton and a drop in walk-in business at the nearby Flamingo Hilton because it was going through a messy expansion.
The Flamingo Hilton, a big moneymaker for the firm, is also facing formidable new competition along the Strip. The glamorous new Mirage hotel across the street has already taken business away, and more new hotels are planned along the Strip.
Hilton also is planning to open a $187-million, 2,000-room casino hotel in the boom town of Laughlin, Nev., along the Colorado River this summer at a time business growth is slowing and costs are rising, some casino experts point out.
“The marketplace has not grown as fast as the facilities in Laughlin,” said Walter Tyminsky, a casino industry newsletter publisher in Virginia. “I think the bloom is coming off the rose as far as profitability is concerned.”
Hilton officials disagree. They contend that the Laughlin hotel will make money right away, while the overall Nevada operations will be more profitable than ever now that its expansion and renovation program, which will cost well over $300 million, is almost done.
“We’re now in excellent shape,” said John V. Giovenco, the executive vice president who runs Hilton’s Nevada properties. Barring a last-minute hitch, Giovenco said, the Nevada operations should report record profits in the first quarter of 1990, which ended Saturday.
Others argue that time is on the company’s side. The Nevada casinos will generate so much cash that the company will again be an attractive acquisition candidate by next year, according to John P. Uphoff, financial analyst for Raymond, James & Co. in St. Petersburg, Fla.
“At some point down the road, this company is going to be sold,” Uphoff said.