Investment house to buy Hilton Hotels - The lodging giant and Blackstone agree to a $26-billion deal.

The $26-billion deal would put the world's fourth-largest hotelier under the control of financiers who have led the privatization wave that has swept corporate America in the last two years.

The proposed purchase reflects the enormous and growing profitability of the hospitality industry, which has been booming worldwide with the surging global economy. Hotel companies, enriched by strong bookings and rising room rates, have embarked on major expansions in the United States and abroad.

"The hotel business has been in a positive perfect storm, coming back from the terrible events of 9/11," said investment banker Donald Wise of Irvine-based Johnson Capital. "Profits have been at record levels for the past several years."

Hilton co-Chairman Stephen F. Bollenbach said the company's expansion prospects were "terrific" before joining with Blackstone. Now, "We will have a better opportunity in terms of growth," he said.

Blackstone indicated that it was drawn to Hilton by the scope of its operations.

Hilton last year repurchased Hilton International, which it had sold in 1964, and earlier this year announced plans for dozens of new hotels in China, Russia and Central America.

Hilton, founded in 1919 by Conrad Hilton with one hotel in Cisco, Texas, now operates 480,000 rooms in 2,800 hotels in 76 countries. Its brands include Hilton, Conrad Hotels, Doubletree, Hampton Inns and its marquee Waldorf-Astoria properties.

Although the Hilton family name is on the door and Conrad Hilton's son Barron Hilton, 79, is co-chairman, the family owns less than 6% of the stock in the firm, which has been publicly traded since 1946. Celebutante Paris Hilton is the great-granddaughter of Conrad Hilton.

The 20.8 million shares controlled by Barron Hilton will be worth $990 million if the deal is approved by shareholders.

Blackstone is one of the biggest names in the corporate buyout business and just sold shares in itself to investors last month. It already is a substantial player in hotels, owning more than 100,000 rooms in the U.S. and Europe, including the La Quinta Inns chain, and the Golden Door spa in San Diego County as well as the Boulders Resort and Golden Door Spa in Arizona.