Hilton venturing into
Promus landThe $4 billion deal will form one of
Bloomberg News
the country's largest lodging chainsBEVERLY HILLS, Calif. -- Hilton Hotels Corp. agreed to buy Promus Hotel Corp. for $4 billion in cash, stock and assumed debt, adding Embassy Suites and more modest chains such as Hampton Inn to its stable of luxury hotels.
Hilton will pay $38.50 for each Promus share, a 23 percent premium to Promus's price Friday. Hilton will pay cash for 55 percent of Promus's shares and stock for the rest. It also will take on about $900 million in debt, a spokesman said.
Chief Executive Stephen Bollenbach wants to lessen Hilton's dependence on its 10 largest hotels, such as the Waldorf-Astoria in New York, which generate two-thirds of its profit. With Promus, Hilton will widen its variety of customers by adding less-costly rooms, putting it in a better position to compete against Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc.
"It was a necessary deal for Hilton in order for them to compete," said analyst Bryan Maher of Credit Lyonnais Securities Inc., who rates Hilton shares an "add."
Investors have grown impatient waiting for Bollenbach, who's known for big acquisitions, to make a sweeping move to invigorate Hilton. The company's profit growth has slowed the past year as construction of new hotels increased competition and made it harder for hoteliers to raise rates.
That's hurt the shares of the Beverly Hills, Calif.-based company, which have dropped about 50 percent since March 1998. Hilton fell 62 cents to $11.81. Promus, based in Memphis, Tenn., rose $3.44 to $34.81.
The Promus purchase didn't alleviate some investors' concerns, especially since Hilton said the transaction will reduce earnings "moderately" next year.
"We're not very happy about it," said Mary Chris Gay, a vice president at Legg Mason Inc., which holds 5.8 million Hilton shares. "They're overpaying."
Hilton has about 275 owned, managed or franchised hotels in North America, including its newer mid-priced Hilton Garden Inn hotels and Hilton Residential Suites extended-stay hotels.
In Hawaii, Hilton manages the 2,542-room Hilton Hawaiian Village and the 485-room Hilton Turtle Bay Resort on Oahu and the 1,241-room Hilton Waikoloa Village on the Big Island. It owns the Hawaiian Village, has a minority interest in the Waikoloa property and manages Turtle Bay for an investor group. The lodging company also has Hilton grand vacation time-share facilities.
The new corporate headquarters will be in Beverly Hills, Calif., but will maintain an operational presence in Memphis. The transaction, still subject to shareholders' approval, is expected to be completed by year's end.
