Hilton Reportedly in Talks to Buy Chains

Hilton Hotels Corp., the third-largest U.S. hotel company, is in talks to buy Patriot American Hospitality Inc.’s Summerfield Suites chain and several other hotels for as much as $1 billion, according to people familiar with the situation.

Beverly Hills-based Hilton is also discussing an equity investment of as much as $350 million in Patriot, one of the largest U.S. hotel companies and owner of the Wyndham chain, a source said.

Chief Executive Stephen Bollenbach is looking to buy upscale hotels in big cities and resort areas where the high cost of construction would limit any new competition.

Acquiring Summerfield Suites would expand Hilton into the fast-growing business of renting rooms for stays of six days or more.

“I still view Hilton as a somewhat under-distributed brand,” Credit Lyonnais Securities analyst David Loeb said.

Hilton spokesman Marc Grossman declined to confirm the talks, though he did say Hilton is not interested in buying all of Patriot American, a real estate investment trust.

Patriot officials could not immediately be reached. The talks were reported in Wednesday’s Wall Street Journal.

In New York Stock Exchange trading, Hilton shares fell 25 cents to close at $14.13, and Patriot shares rose 69 cents to close at $5.75. A deal with Hilton could present another way for Dallas-based Patriot American to relieve a cash crunch. The REIT is trying to raise money to pay $1.7 billion of bank debt and other obligations coming due.

It has been negotiating with a group led by financiers Leon Black and Thomas Lee for a $1-billion equity investment. Patriot’s share price has fallen 24% since the plan was announced, on fears it could dilute the value of shares held by other investors. The group would be paid in new preferred stock that would be convertible to common stock.

Patriot and the group, led by Black’s Apollo Real Estate Advisors, are still negotiating the definitive terms of their investment. Their letter of intent was announced Dec. 16. Officials with Black’s Apollo Real Estate Advisors did not return telephone calls.

Hilton isn’t interested in making a long-term investment in Patriot American and isn’t proposing to buy convertible preferred stock, said one person familiar with the talks.

Hilton said recently that it has considered starting its own extended-stay chain, allowing it to compete with others such as Residence Inn by Marriott.