Activist investor buys stake in Hilton
Billionaire Carl Icahn, known for his active investment style, has acquired a 1% stake in Hilton Hotels Corp., according to a filing made public Tuesday.
The New York-based investor, through his Icahn Management investment fund, acquired a similarly sized stake in Wyndham Worldwide Corp., another big hotel operator, according to the filing with the Securities and Exchange Commission.
As of Sept. 30, Icahn owned 4.1 million shares of Hilton, worth $126.7 million at Tuesday’s closing price of $30.91. It was a 52-week high for the stock, which gained 6 cents on the day.
Executives at Beverly Hills-based Hilton couldn’t be reached for comment. Icahn didn’t return a call seeking comment. The investor has a well-earned reputation for buying stakes in companies and then leaning on management to make changes to boost shareholder returns.
This year, for example, Icahn tried to break up Time Warner Inc. with the goal of increasing its value.
He eventually settled for a promise that the company would buy back additional stock and cut costs more aggressively.
But one analyst said Icahn’s intentions regarding Hilton might be more benign.
“I don’t think the near-term intention of Carl Icahn is to shake things up, given that Hilton is a very well-managed company and the stock has performed very well recently,” said Will Marks, an analyst with JMP Securities in San Francisco.
“And looking ahead, he probably sees a lot of value in the company’s assets that it plans to sell,” Marks said.
The investments were made public two weeks after Hilton reported strong third-quarter results amid a healthy market for lodging companies. Hilton, whose stock is up 28% this year, also is selling some of its European hotels, deals that could generate $1 billion to $2 billion for the company.
Hilton’s credit ratings were cut this year after it took on $4.61 billion in debt to acquire the hotel properties of London-based Hilton Group. Although Icahn’s intentions aren’t clear, one analyst worries that he could pressure Hilton management to divert cash ticketed for debt repayment to uses designed to benefit stockholders.
The situation is “tailor-made for an Icahn-ic push for enhancing shareholder value by returning more cash to shareholders instead of paying down debt,” analyst Carol Levenson of research firm Gimme Credit wrote in a note to clients.
Analyst Emile Courtney of Standard & Poor’s took a more sanguine view, saying his firm was maintaining its current credit rating on Hilton -- BB with a stable outlook -- with the expectation that cash flow and proceeds from asset sales would be used for debt reduction.
“We do not have concerns at this time,” Courtney said.
Icahn’s investment in Hilton, which operates 2,895 hotels in 80 countries, and Wyndham comes as the lodging industry is performing well. A boom in business and leisure travel is driving occupancy rates to record levels, particularly at upscale hotel chains such as Hilton.
Although the growth in occupancy rates is slowing, Courtney said, hotel operators are still able to raise room rates.
“We think 2007 will be another strong year for the U.S. lodging industry,” he said.
The SEC filing also revealed that Icahn had increased his holdings in Time Warner from 49.6 million shares to 55 million, or 1.4%, and had dumped his holdings in retailer BJ’s Wholesale Club Inc. and security software maker Symantec Corp.
