A World of Opportunity Awaits Hilton
Hilton Hotels Corp.’s possible acquisition of the hotel operations of Britain’s Hilton Group would allow the Beverly Hills-based chain to jump into international markets, where the travel and leisure market is expanding briskly, analysts said Friday.
Hilton Hotels confirmed Friday that it was in talks to acquire the lodging division of London-based Hilton Group, which has been doing business separately for more than four decades. Hilton Hotels, whose operations are now confined to North America, declined to comment further on the possible deal.
If Hilton Hotels were to buy the more than 400 hotels of its British namesake, it could gain economies of scale and the flexibility to compete in lucrative growing markets, analysts said. Competitors such as Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. are opening hotels in Europe and Asia for new sources of growth.
Industry observers estimated the value of a possible all-cash transaction at about $6.3 billion. Ladbrokes, the gambling division of Hilton Group, would not be part of the deal.
The two Hiltons split in 1964 to free the burgeoning European subsidiary from debt restrictions imposed on the parent corporation.
Putting them back together “makes tremendous sense,” said industry analyst Jim Butler of Jeffer, Mangels, Butler & Marmaro.
“It has been awkward at best for Hilton to have this split personality,” Butler said. “It’s been very confusing to investors, developers and lenders as well as travelers.”
The reunion would bring together 2,700 hotels in more than 80 countries. It would sharpen Hilton’s focus, leverage its buying power and improve its ability to deliver services, Butler said. “It’s the next logical step.”
Hilton needs to keep up with competitors in the growing international market, Legg Mason analyst Rod Petrik said.
“What this deal allows them to do is not only franchise and grow the Hilton brand name but also some of their other concepts like Embassy Suites or a Hampton Inn across European markets,” Petrik said.
Hilton Hotels may also attempt to push further into Asia to participate in the Chinese economic boom. A merger would allow the company to take on U.S.-based Marriott International, which has about 30,000 rooms, or 1.2% of the supply, in Asia.
Marriott “went in there with their full service, and they got people to buy into the Marriott brand name. And now they’ve moved into second- and third-tier markets with their Courtyard brand,” said Jeff Randall, equity analyst at A.G. Edwards & Sons.
Hotels have yet to fully exploit the concept of branding in Europe and Asia, analysts said, although travelers are quickly embracing its benefits. The two Hilton chains have long shared a common reservation system and bonus program for frequent travelers.
“They’ve already been living together, and now it looks like they’re finally getting married,” said hotel industry analyst Neale Redington of Deloitte & Touche. “It’s just a matter of all the stars coming aligned.”
Stock in Hilton Group rose 13% to 345.50 pence, or $6.07, in London trading Friday. Shares of Hilton Hotels, however, fell $1.32, or 6%, to $19.95 in New York. Standard & Poor’s said Friday that it placed Hilton Hotels’ BBB-minus corporate credit rating on credit watch “with negative implications” because of the potential merger.
Times wire services were used in compiling this report.
