One of the oldest and most storied operators in the hotel business, Beverly Hills-based Hilton Hotels Corp., agreed Tuesday to a takeover by corporate buyout giant Blackstone Group.
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.
"It is hard to imagine a better strategic fit for us than Hilton," Jonathan Gray, a senior managing director at New York-based Blackstone, said in a statement. "This transaction is about building the premier global hospitality business."
Blackstone agreed to pay $47.50 a share in cash for Hilton, a 40% premium to the stock's closing price Monday. The stock jumped $2.18 to close at $36.05 on Tuesday before the deal was announced.
In part, the deal may be about real estate opportunities, some analysts said. Hilton owns some choice properties, including the historic Waldorf-Astoria in New York and the Hilton Hawaiian Village Beach Resort and Spa in Honolulu. But the majority of its hotels are franchised and the company has been actively selling its land and buildings since 2005 to focus instead on management and operations of the hotels.
Blackstone is a major owner of commercial real estate. In a landmark deal this year, it bought Equity Office Properties Trust, the largest office landlord in the country, for $23 billion.
Often, corporate buyout targets have been companies that can be restructured via cost cutting or dismantling to sell off pieces at a profit. Buyout firms often look to resell their companies within a few years.
Blackstone in April agreed to sell its 683-unit Extended Stay hotel chain for $8 billion, three years after buying the business.
But in a joint statement announcing their deal, Blackstone and Hilton said that "Blackstone views Hilton as an important strategic investment; no significant divestitures are envisaged" as a result of the deal.
Blackstone "intends to invest in the Hilton properties and brands globally to enhance and grow the business for the benefit of owners, franchisees and customers," the companies said.
"I think it's safe to say, in every regard, things will be better," Bollenbach, 64, said. "From a guest standpoint, they should see no changes."
Bollenbach had already planned to retire at year-end. He could not say whether company President Matthew J. Hart would succeed him as chief executive, as previously announced.
Although corporate takeover activity in general has mushroomed this year, Hilton had not been rumored to be a buyout candidate. At Monday's closing price its stock was down slightly year to date.
The lack of movement in the shares may have made the Blackstone bid more appealing.
Bollenbach said he considered the Blackstone offer "a healthy premium."
"That's what makes this so compelling," he said. "It makes us happy and anxious to recommend this to the shareholders."