NEW YORK, N.Y. – Hilton is back, and in a big way.
The hotelier, which went private in 2007, on Wednesday priced its initial public offering at $20 per share. The company and a shareholder are selling 117.6 million shares, about 5 million more than originally planned, for a total take of $2.35 billion.
The payoff surpasses the $2.1 billion generated by Twitter’s IPO last month. If the banks involved buy the extra shares in the deal — the overallotment — it will be the second-biggest IPO of the year, behind Plains GP Holdings LP at $2.9 billion.
Hilton Worldwide Holdings Inc. is the world’s largest hotel group, with 665,667 rooms across 90 countries and territories. It traces its roots back to 1919 and claims it was the site for a number of historical events, including John Lennon’s penning of one of his most popular songs in New York and the creation of the pina colada in Puerto Rico.
It’s also the largest hotel IPO ever, according to Morningstar analyst Chad Mollman.
The offering would give Hilton a total market value of $19.7 billion. That tops rivals Marriott International and Starwood Hotels & Resorts Worldwide Inc., each with market capitalizations of $13.8 billion as of the close of trading Wednesday.
Blackstone led a $20 billion deal to take Hilton private in October 2007. The timing couldn’t have been worse. The worldwide recession was about to hit. Business travellers — with their deep expense accounts — stopped travelling and corporate events were scaled back. Millions lost their jobs and families cancelled vacation plans.
Blackstone brought in new management to run Hilton and focused on expanding its luxury brands, Waldorf Astoria and Conrad, and growing its footprint through more franchise deals. Like most hotel companies, Hilton doesn’t own the vast majority of its properties; just 157 of its 4,041 hotels, resorts and timeshare properties are owned by the company. For the rest, it either has a management agreement to run the hotel or franchises out one of its 10 brands.
Just about all of its growth since 2007 has come from such deals and the slow improvement in the global economy. The company now fills 72.3 per cent of its rooms, compared with 68.4 per cent in 2010. It can also charge more for those rooms: $136.43 during the first half of this year, compared to $126.06 in 2010.
Last year, Hilton had $9.3 billion in revenue and posted a profit of $359 million.
Blackstone typically holds companies for just a few years before selling to provide cash to its investors. The recession probably delayed Blackstone’s turnaround plans for Hilton. But now with the hotel group’s key metrics climbing, and real estate IPOs making a splash in 2013, the time was ripe to attract investors.
The stock opens for trading Thursday under ticker “HLT” on the New York Stock Exchange.
IPOs generally mirror the market and, given the market’s rise this year, it’s a good time to go public, said Michael J. Sullivan, a professor of finance at the University of Las Vegas, Nevada.
“It’s really a combination: the overall market is good and their industry is doing well,” he said in a recent interview. “You know the timing is good if Blackstone is doing it.”
Blackstone was not expected to sell any shares in the IPO, and will continue to hold majority voting power. Hilton has said that it will use its share of proceeds from the IPO to pay back debt.
The company traces its roots back to Cisco, Texas where, in 1919, founder Conrad Hilton purchased his first hotel, the Mobley Hotel. Six years later, the Hilton name appeared on a new hotel in Dallas.
The hotel chain, which now has its world headquarters in McLean, Va., played many other roles in history.
Hilton says that the pina colada cocktail was invented at the Caribe Hilton in Puerto Rico in 1954 and that it pioneered the idea of an airport hotel in 1959 in San Francisco. Elvis Presley performed 57 sold-out shows at the Hilton Las Vegas starting in 1969.
In 1971 John Lennon handwrote the lyrics to “Imagine” on a piece of New York Hilton stationery while at the hotel. In 1975 the Muppet characters Statler and Waldorf were introduced, named after two Hilton properties in New York. It was also outside the Washington Hilton Hotel that President Ronald Reagan was shot by John Hinckley, Jr. in 1981.
Hilton has an advantage over competitors in several key markets due to the prime locations of its hotels, notes Steven A. Carvell, associate dean for academic affairs at Cornell University’s School of Hotel Administration.
Hilton’s 157 company-owned properties include the Hilton San Francisco Union Square, the London Hilton on Park Lane, overlooking Hyde Park in the exclusive Mayfair district and the Hilton Hawaiian Village, which sits on 22 oceanfront acres along Waikiki Beach.
“Having been an early player in many markets, it gave them a locational advantage,” Carvell said. The catch: “Along with that comes the disadvantage of aging properties.”
Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott.
Reporter Sarah Skidmore Sell contributed from Portland, Ore.