The corporate marriage of Hilton Hotels Corp. and Promus Hotel Corp. seemed a perfect match to Hilton Chairman Stephen Bollenbach. But for many Hilton shareholders, last year's merger resembled a doomed relationship.
The stock of Beverly Hills-based Hilton sank in the months following the approximately $3-billion merger. The deal piled nearly $1 billion more debt on the company and diluted earnings per share last year. Some analysts argued that Bollenbach had overpaid and that it would take years for the deal to pay off.
But today, no one is challenging Bollenbach's matchmaking skills. Hilton's share price has regained much of its lost ground as the merger with Promus--owner of Embassy Suites, Doubletree hotels and Hampton Inns--has exceeded expectations. Hilton now boasts more than 1,700 hotels around the world and can hold its own against Marriott Corp. and Starwood Hotels & Resorts Worldwide Inc., which once dominated the industry.
Hilton has used its sizable sales force and popular frequent-guest rewards program--Hilton HHonors--to boost the results of the former Promus properties. The company is now able to pitch an Embassy Suites or a Hampton Inn in areas where it lacked a presence or where the local Hilton is booked or too pricey for a budget-minded customer. In Los Angeles County, for example, the company can now funnel customers to 32 properties--including Doubletree, Embassy Suites, Hampton Inn, Red Lion Hotels and Hilton--as contrasted with the 13 before the merger.
"People were just a little bit miffed at their performance in general," said BankAmerica Securities analyst J. Cogan. But the recent improvement is "starting to bring people back to the stock."
Since bottoming out in early March at below $7 a share, Hilton stock has surged nearly 70%. On Monday, Hilton shares closed at $10.88, up 31 cents.
The stock's turnaround is a vindication for Bollenbach, whose reputation as a stellar corporate strategist took a beating when he lost a long and costly battle in 1997 to acquire ITT Corp., owner of the Sheraton hotels. Upstart Starwood emerged as the successful suitor.
"I got over it a . . . long time ago," Bollenbach said of the failed takeover. "Now that we are strategically complete, we have everything we need to be a competitor in this business."
