Hilton Break-up True?

September 9, 2009

According to a news report by The Independent, a UK newspaper, Blackstone is looking at a range of options for the hotel group, including public listings for parts of the chain along geographic lines, debt-for-equity swaps with lenders, as well as trade sales of portfolios of hotels to rival companies.  As many of you know, Blackstone purchased Hilton for $26 billion at the peak of the buyout bubble in July 2007, financed with $20.6 billion of debt.  It was reported they took a 49% write-down on Hilton Hotels Corp. at the end of 2008.  This according to shareholder documents obtained by peHub.com, a Web site of Thomson Financial. Blackstone’s equity investment in the Hilton deal is held in its fifth buyout fund, BCP V.

Blackstone was on a hotel buying spree for many years.  The company acquired MeriStar, whose portfolio includes the South Seas Plantation Resort here in Southwest Florida, La Quinta Inns, and Extended-Stay America which was subsequently sold to the Lightstone Group and is now in bankruptcy.

Speculation is rampant that the Hilton group of hotels could be broken up under plans being drawn up.  Like many other hotel owners, Blackstone needs to maximize value from Hilton ahead of debt repayment deadlines in three to four years.

The Independent article reported that “with the $21billion worth of debt raised to buy Hilton back in 2007 it isn’t going to be easily refinanced. The costs on servicing the debt aren’t onerous, but the world has changed a lot since this deal was done and preparations need to be made.”

Blackstone has historically has been attracted to high-end, full-service hotels.  In 2004, the company acquired Boca Resorts which includes the Naples Grand in Naples, FL, now part of The Waldorf Astoria Collection.  Many believe the approach will be to break up the Hilton company and selling it in smaller pieces.  This might provide more on the open market than selling the company as a whole. Even more appealing to the company might be breaking it up and taking some of the pieces public. Such a transaction might include 1,700-hotel Hampton Inn brand, the Hilton Garden Inn brand and the Homewood Suites brand all of which are now are located in Memphis, TN. The company could also secure a separate public offering for La Quinta.

However Blackstone has denied reports for any split and a spokeswoman for the group stated that plans for a breakup of Hilton were “categorically untrue”.

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