Hilton to buy hotels of group in Britain

BUSINESS DIGEST

December 30, 2005|By NEW YORK TIMES NEWS SERVICE

LONDON -- Hilton Hotels agreed yesterday to buy the international properties of the Hilton Group of Britain for 3.3 billion pounds ($5.7 billion), reuniting a business that was carved up more than 40 years ago, and setting the stage for further overseas growth of the Hilton name.

The deal brings Hilton Hotels more than 400 international properties and creates an empire of nearly 2,800 hotels stretching from the Waldorf Astoria in New York to the Phuket Arcadia Beach Resort in Thailand.

Until the deal yesterday, Hilton Hotels was banned by its 1964 breakup agreement from operating outside of North America, putting the business at a severe disadvantage to peers like Hyatt and Mariott.

Major hotel chains are in the process of raising their profile worldwide as they expand outside of the relatively mature U.S. market, often managing hotel chains owned by other entities. In March, for example, Marriott opened an Executive Apartments hotel in Beijing, which it will manage.

The deal gives Hilton Hotels worldwide control of the Hilton brand, said Smedes Rose, an analyst with Calyon Securities in New York. It will "allow Hilton to get into markets like India and China, where there has been activity from other U.S.-based lodging companies," he said.

The Hilton Group, based in Watford, England, has been less aggressive about expanding its lodging business than many of its competitors. The company is expected to focus on its British betting chain Ladbrokes after the sale, and it plans to list Ladbrokes publicly next year. The company will drop the Hilton name and be called Ladbrokes when the deal is completed, which is expected in February.

The reunification of the Hilton properties has been long anticipated - the two companies have shared reservation systems and traveler reward programs since a 1997 deal, and operate the Conrad Hotels together. The companies said in October that they were discussing a possible deal.

The agreement strengthens an American brand with a family legacy that has sometimes been marked by controversy. Conrad Nicholson Hilton, founder of the Hilton chain, bought his first hotel in 1919 and oversaw the split of the group's U.S. and international assets into two separate public companies in 1964. The U.S. unit agreed at that time not to compete with the international division.

When he died in 1979, Hilton left a controlling stake in the U.S. hotel assets to a charitable foundation he established to work with Roman Catholic nuns, eschewing children from his three marriages (including one child with Zsa Zsa Gabor). His will was contested successfully by his son, Barron Hilton, the grandfather of the ubiquitous socialites Paris and Nicky Hilton, and Barron Hilton remains the co-chairman of Hilton Hotels.

The deal "represents the final and logical step in a process that began in 1997 with the signing of our strategic alliance," said Stephen F. Bollenbach, the Hilton Hotels co-chairman and chief executive officer. It is "a unique opportunity to once again position HHC as a global lodging industry leader for the first time in more than 40 years," Bollenbach said.

Hilton Hotels, based in Beverly Hills, Calif., said yesterday that it intended to continue a long-term strategy of selling assets.

The company has sold 20 properties in North America in the past year, raising $1 billion. It sold the properties to banks and investors and retains the management rights to many of them. It is expected to do the same with the international hotels it has just acquired.

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