Hilton serves up a surprise in market debut

14 Dec 2013


Shares of Hilton Worldwide Holdings Inc shot over 9 per cent in afternoon trading during their New York Stock Exchange debut on Thursday.

The stock was up at as high as $21.92 after Blackstone Group LP raised over $2.3 billion in the year's second-biggest IPO.

The shares on Wednesday night were priced at $20 which was within the expected range of $18 to $21. Hilton and existing shareholders offloaded 117.6 million shares in the IPO.

The Blackstone Group's investment in the Hilton hotel group, serves as an example of the quicksilver world of private equity finance.

Blackstone took Hilton private in 2007, paying a headline-grabbing price of $26 billion (See: Blackstone acquires Hilton Hotels for $26 billion).

Only a few months after the deal the financial markets seized up and travel - and hotel bookings - fell into a prolonged slump.

When Hilton Worldwide Holdings' stock began trading again on Thursday, the company had a market capitalisation of just $20 billion, which would suggest a loss in value of $6 billion.

Blackstone had, in fact, increased the value of its investment by nearly $10 billion thanks to a combination of lucky timing, smart financial engineering and disciplined management.

The New York Times quoted Robert M La Forgia, the chief financial officer of Hilton at the time of its sale as saying,  they paid a premium price at the peak of the market.

He added, they were able to ride out the downturn, a significant real estate crisis and a financial crisis, and still come back and have a successful IPO.

Forgia now runs Apertor, a hospitality consultant firm.

Founded in 1919 by Conrad Hilton, the company's brands included such a number of high end names sucha as Conrad and Waldorf Astoria.

Hilton, has operations across 90 countries, and over 4,000 hotels with 670,000 rooms under its umbrella. Hilton itself owns or leases 157 hotels, including the Waldorf Astoria in New York and the Hilton Hawaiian Village.

The US hotel industry which is in the recovery phase, expects room rates and occupancy levels to increase in 2014, according to PricewaterhouseCoopers. The Dow Jones US Hotels index has increased around 30 per cent so far this year.

Reuters quoted Ryan Meliker, senior analyst at investment bank MLV & Co as saying the hotel sector was a very attractive sector to be in as the fundamentals were very strong in the US and there was a real expansion story in the emerging markets.

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