Hilton Abandons Plan to Spin Off Casinos
In its latest zigzag in corporate direction, Hilton Hotels Corp. announced Thursday that it has abandoned plans to spin off its gambling operations into a separate company as gaming industry profits and growth have faded.
The decision to keep the Beverly Hills-based lodging and gaming company intact comes after a series of strategic and executive changes that have angered and confused investors. Last May, for example, Hilton’s stock plunged almost 10% in one day after it announced the spinoff after apparently failing to find a buyer for the entire company.
“I’m not happy with the decision,” said money manager Mario Gabelli, whose investment firm owns more than 5% of Hilton shares.
Hilton officials said keeping the company together would leave it in a better position to expand its gambling and lodging businesses. “After exhaustively weighing the pros and cons, we concluded that the company would be stronger with the existing combination of our hotel and gaming businesses,” said Barron Hilton, chairman and chief executive, in a statement.
On Wall Street, Hilton shares on the New York Stock Exchange rose $1 on Thursday to close at $69.125. Investors were apparently reacting to Hilton’s strong 1995 earnings released the day before, which showed dramatic gains in its hotel business, said securities analysts.
It was only eight months ago that the company said the planned spinoff would allow both the gambling and hotel operations to “develop and operate more effectively.”
The flip-flop took place after gambling stocks were weighed down by increased competition and slower than expected growth. For example, Hilton put its newly built riverboat casino in New Orleans up for sale after it failed to meet expectations.
In November, Hilton President Raymond C. Avansino Jr., who had spearheaded the company’s push into gambling, abruptly resigned, indicating to some that the firm might be backing off its spinoff plan. No formal search has begun to replace Avansino, said Hilton spokesman Marc Grossman.
“Hilton has under-performed the market over the last year in part because of the uncertainty of what the company is going do,” said Joseph Coccimiglio, a securities analyst at Dean Witter Reynolds.
Ironically, Hilton’s once-troubled hotel operations began spouting profit at a time when its gambling business, which was undergoing a major expansion, started to fade. Last year, for example, Hilton’s hotels posted a 41% increase in operating income while its casino profit grew only 7%.
In 1989, Hilton had put itself on the auction block as Japanese investors were paying top dollar for hotel properties. But Hilton never reached a deal as Japan and the U.S. fell into recession. The company later abandoned efforts to find a buyer.
