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 sold 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 would be the second-biggest IPO of the year, behind Plains GP Holdings LP’s 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 the creation of the pina colada in Puerto Rico.
The company’s growth has come from franchise deals and the slow improvement in the global economy. The company now fills 72.3 percent of its rooms, compared with 68.4 percent. It can also charge more for those rooms: $136.43 during the first half of this year, compared to $126.06 in 2010.
Hilton has had a long road back from the downturn. When the Blackstone Group led a $20 billion buyout of Hilton six years ago, the worldwide recession was about to hit. Business travelers – with their deep expense accounts – stopped traveling, and corporate events were scaled back. Millions lost their jobs, and families canceled 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, with that segment’s room count climbing 39 percent. Last year, Hilton had $9.3 billion in revenue and posted a profit of $359 million.
With 984.6 million shares outstanding, the IPO gives 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.
The stock opens for trading Thursday under the ticker “HLT” on the New York Stock Exchange.
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.
IPOs generally mirror the market, so, 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 is not selling 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.
Hilton 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.
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. However, “along with that comes the disadvantage of aging properties.”