US private equity firm Blackstone Group agreed last night to buy Hilton Hotels for about $26 billion, the richest in a series of recent private equity offers for hotel companies.
Under terms of the agreed deal, Blackstone will pay $47.50 for each share of Hilton, one of the most prominent global hotel brand names, and take on debt.
That's a 32 per cent premium over yesterday's closing price. Ahead of the post-close announcement, shares of Hilton had risen 6.4 per cent to close at $36.05 on the New York Stock Exchange.
Options volatility and volume in Hilton stock was well above average before the close of trade yesterday, said Paul Foster, an options strategist at theflyonthewall.com.
Blackstone, which raised $4.1 billion in an IPO late last month, said it intends to invest in the Hilton properties and brands globally to grow the business.
The hotel industry is enjoying a multiyear boom as robust demand has allowed hoteliers to steadily raise rates. The upbeat market environment, supported by limited construction of new hotels, has made lodging assets hot commodities.
Hilton is worth $20.1 billion, based on 424 million shares on a diluted basis at the end of March at the price Blackstone is paying. Hilton said it had more than $7 billion of debt in its January-March quarterly results.
A spokesman for Blackstone said the group was not revealing the debt and equity portion of the deal at this stage.
Many investors think the notoriously cyclical US hotel industry has more room to grow and could provide risk-adjusted returns that outperform other asset classes, according to Thomas Callahan, an analyst with hospitality industry tracking firm PKF Consulting in San Francisco.
Blackstone already has a significant portfolio of hotel and resort properties that includes more than 100,000 hotel rooms in the United States and Europe. Its properties include La Quinta Inns and LXR Luxury Resorts and Hotels.
Hilton's brands include Hilton, Conrad Hotels & Resorts, Doubletree, Embassy Suites, Hampton Inn, Hilton Garden Inn, Hilton Grand Vacations, Homewood Suites by Hilton, and The Waldorf-Astoria Collection.