A Spurt Precedes Hilton's Sale

By Renae Merle
Washington Post Staff Writer
Thursday, July 5, 2007

In the hours before the Hilton hotel chain announced Tuesday that it was selling itself to the Blackstone Group for $26 billion, the company's shares spiked significantly in trading on the New York Stock Exchange.

Hilton's stock rose 6.4 percent, to close at $36.05 a share Tuesday, its biggest increase since the end of 2005. Share volume doubled from the previous day despite a shortened trading session. The Standard & Poor's 500-stock index rose less than 1 percent that day.

The gain in stock price probably means word of the transaction "leaked prematurely," Scott Moeller, a professor of mergers and acquisitions at Cass Business School in London, told Bloomberg News. "The parties may have had to announce the deal before they intended."

John A. Ford, a Blackstone spokesman, declined to comment yesterday. Spokesmen for Hilton and the Securities and Exchange Commission could not be reached. After several similar incidents, the SEC has stepped up investigations of suspected insider trading just before takeover agreements.

Anybody who bought Hilton shares on Tuesday and is still holding them got a sweet deal. After the market closed, Blackstone said it would pay $18.5 billion in cash, or $47.50 a share, and assume $7.5 billion in debt to acquire the company, one of the biggest buyouts ever. U.S. markets were closed yesterday because of the holiday, but Hilton shares soared 37 percent on the German market.

One possible explanation for Tuesday's price movement was an analyst report from Jefferies, which named Hilton stock a "pick of the week" and predicted it could become a target for private-equity buyers, a prognostication that came true within hours.

The report, by Lawrence A. Klatzkin, noted that three major real estate investment trusts involved in the lodging industry had been bought by private-equity firms over the previous two months at attractive prices.

"Hilton has a large and growing, high-margin fee business. Given this business structure, we believe Hilton is better positioned in the industry yet continues to trade at a discount," the report said. "As such, we believe Hilton should command a high valuation."

If the acquisition is approved by shareholders, Blackstone would take control of one of the most valuable brands in U.S. business.

Established in 1919, the Hilton chain includes more than 2,800 hotels around the world, including such flagships as the Waldorf-Astoria in New York, the Hilton New York and the Cavalieri Hilton in Rome. It would also add to Blackstone's already significant group of hotel properties, which includes more than 100,000 hotel rooms in the United States and Europe, including the La Quinta Inns and Suites chain. The acquisition is expected to close in the final three months of the year.

The deal is Blackstone's first since its highly anticipated initial public offering in June. It was one of the richest IPOs in history and came as House Democrats proposed more than doubling the tax rate for managers of private-equity and hedge funds.

Meanwhile, in European trading yesterday, the Hilton news helped boost many hotel stocks. Intercontinental Hotels Group, which operates such hotel brands as Crowne Plaza and Holiday Inn, gained 3.9 percent in London. Accor, which has 3,800 hotels worldwide, rose 10.3 percent.

"European hotel stocks were all boosted by the news this morning as speculation mounted that other hoteliers may be targeted also," said Victoria Savage, a trader at CMC Markets in London.

The Associated Press and Bloomberg News contributed to this report.

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