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Press Release: Hilton Hotels Corporation
December 30, 2005
BEVERLY HILLS, CA -- Hilton Hotels Corporation (NYSE:HLT; "HHC") yesterday announced an agreement whereby
HHC will acquire the lodging assets of Hilton Group plc (known collectively as "Hilton International"
or "HI") for approximately GBP 3.30 billion (or $5.71 billion) in an all-cash transaction. This equates
to a purchase price multiple of 11.3 times pro forma 2006 Adjusted EBITDA. The purchase price assumes a USD/GBP
exchange rate of $1.73:GBP 1; the USD amount may change depending on the exchange rate at closing.
The transaction is expected to close in the first quarter of 2006. Consummation of the transaction is subject to
a number of conditions, including receipt of certain competition and governmental clearances, and the approval
of Hilton Group shareholders.
Hilton Group will retain its gambling and betting business and is expected to be renamed Ladbrokes plc.
Upon completion of the transaction, Hilton Hotels Corporation will be the largest and most geographically diverse
lodging company in the world, with nearly 2,800 hotels and 475,000 rooms in 80 countries, operating under the industry's
most respected brand names, including Hilton, Conrad, Doubletree, Embassy Suites, Hampton Inn, Hilton Garden Inn,
Homewood Suites by Hilton, Scandic and Hilton Grand Vacations Club.
Included in the acquisition are 40 hotel properties currently owned by HI (most of which are in the UK and Europe,)
200 leased properties, approximately 160 fee contracts (mostly management contracts) and approximately 80 LivingWell
Health Clubs (most of which are managed.) HHC will also acquire in the transaction full ownership of Hilton HHonors
Worldwide and Hilton Reservations Worldwide, which have been 50/50 joint ventures with HI and managed as part of
the strategic alliance between HHC and HI. HHC will also obtain worldwide ownership of the luxury Conrad Hotels
brand, which has operated as a joint venture between the two companies since 2002.
On a pro forma full year basis (assuming the transaction closed December 31, 2005,) the combined entity is expected
to have 2006 Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of approximately
$1.7 billion, and be accretive to HHC's expected stand-alone 2006 earnings.
"This transaction represents the final and logical step in a process that began in 1997 with the signing of
our strategic alliance, and is a unique opportunity to once again position HHC as a global lodging industry leader
for the first time in more than 40 years," said Stephen F. Bollenbach, HHC co-chairman and chief executive
officer. "With the current strength of our business in the U.S., our strong balance sheet, the beginning of
a hotel industry recovery in the U.K. - which accounts for about a third of HI's income - and the success we've
had in working together with HI for eight years on such programs as Hilton HHonors, Hilton Reservations, Conrad
development and technology initiatives, the time is right to put these two great organizations together."
David Michels, chief executive of Hilton Group plc, said: "I am very proud of the Hilton brand, which has
consistently been acknowledged as one of the world's leading brands. Our customers can look forward to enjoying
even more opportunities as a result of the combined strengths of the brands."
HHC noted that the strategic benefits of the transaction include:
The company anticipates significant growth opportunities for its worldwide system for many of its brands through
franchise and management agreements. The current HI development pipeline consists of signed contracts for 58 hotels
with 14,000 rooms. HHC's development pipeline currently consists of 520 hotels and approximately 64,000 rooms.
"Brand development is becoming a more accepted concept internationally, providing exciting opportunities for
all our brands in many important markets around the world," Mr. Bollenbach said. "There is an appetite
among global hotel owners for strong brands in the full-service, focused-service and all-suite segments, and our
brand portfolio is uniquely positioned to fill that need."
Consistent with its successful asset disposition strategy in the U.S. - which has resulted in 20 hotels being sold
year-to-date for a total of more than $1 billion - while retaining long-term management or franchise contracts,
HHC plans to continue the international asset disposition program currently being undertaken by HI, retaining management
or franchise agreements. Proceeds from asset sales completed by HHC after the transaction will be used to repay
debt.
The transaction will be financed with cash on hand at the time of the closing (estimated to be approximately $1.2
billion,) and a new bank facility. The financing is led by Bank of America and UBS.
The combined company will be headquartered in Beverly Hills, California, with Mr. Bollenbach as co-chairman and
chief executive officer, Matthew J. Hart as president and chief operating officer, Robert M. La Forgia as senior
vice president and chief financial officer, and the remainder of the HHC senior management team remaining in their
current positions. Ian R. Carter, currently chief executive of Hilton International, will join HHC as executive
vice president and chief executive officer of Hilton International, with responsibility for managing international
operations reporting to Mr. Hart. Thomas L. Keltner, executive vice president and president of HHC's brand performance
and development group, continues reporting to Mr. Hart in that position. HHC anticipates retaining the majority
of HI's operating and development team as well as other executives.
Concurrent with signing the agreement, Mr. Michels resigned his position on the Board of Directors of HHC, and
Mr. Bollenbach resigned his position on the Board of Hilton Group.
"HI has an experienced and talented team of professionals with unsurpassed knowledge of international markets,
and as we have come to know and work with them during the successful eight years the alliance has been in place,
we are excited about the role they and our existing management team will play in the future growth and prosperity
of our company," Mr. Bollenbach said.
While many operational efficiencies have already been realized through the strategic alliance, HHC does expect
to realize approximately $30 million in annual cost savings going forward. HHC also anticipates realizing a number
of revenue enhancing synergies, primarily from new opportunities to grow its brands on a global basis, and worldwide
implementation of HHC's proprietary "OnQ" technology system.
After creating the industry's first global lodging company under the leadership of company founder Conrad N. Hilton,
HHC spun off its international business to shareholders in 1964. That business went through a number of owners,
ultimately being acquired in 1987 by U.K.-based Ladbroke Group PLC. In 1997, Mr. Bollenbach - who had become HHC's
CEO in 1996 - forged a strategic alliance with HI (the lodging subsidiary of Ladbroke) creating joint ownership
of the Hilton HHonors guest loyalty program and Hilton Reservations Worldwide, and cooperative sales and marketing
programs, presenting to the traveling public a united "Hilton" brand on a worldwide basis. Acknowledging
the strength of the alliance and the Hilton brand name, Ladbroke subsequently changed its name to Hilton Group
plc.
"As the alliance developed, benefiting both companies and our millions of global customers, we always envisioned
the formal coming together of Hilton's domestic U.S. and international businesses," Mr. Bollenbach said. "The
enthusiasm of both companies' Boards of Directors for making the new worldwide Hilton Hotels Corporation a reality
has been a key element in this transaction, which we are confident will bring value to our guests, our team members,
our owners and our shareholders for years to come."
HHC's lead advisor was UBS Securities LLC, with Bank of America Securities LLC and Morgan Stanley as co-advisors.
Hilton Hotels Corporation is recognized internationally as a preeminent hospitality company. The company develops,
owns, manages or franchises more than 2,300 hotels, resorts and vacation ownership properties. Its properties includes
many of the world's best known and most highly regarded hotel brands including Hilton®, Conrad®, Doubletree®,
Embassy Suites Hotels®, Hampton Inn®, Hampton Inn & Suites®, Hilton Garden Inn®, Hilton Grand
Vacations Company® and Homewood Suites by Hilton®.
Hilton International (HI), an operating division of the UK based Hilton Group plc, owns the rights to the Hilton
brand name throughout the world, with the exception of the USA. HI operates 403 hotels, with some 261 branded Hilton,
47 of which under the Hilton Worldwide Resorts, plus 142 under the mid-market Scandic brand. Under a joint venture
agreement, Hilton International and the North American based Hilton Hotels Corporation (HHC) share responsibility
for the Conrad brand, which includes luxury hotels in several markets around the world.
Note: This presentation contains "forward-looking statements" within the meaning of federal securities
law, including statements concerning business strategies and their intended results, and similar statements concerning
anticipated future events and expectations that are not historical facts. The forward-looking statements in this
presentation are subject to numerous risks and uncertainties, including the effects of economic conditions; supply
and demand changes for hotel rooms; competitive conditions in the lodging industry, relationships with clients
and property owners; the impact of government regulations; changes in foreign currency exchange rates; and the
availability of capital to finance growth, which could cause actual results to differ materially from those expressed
in or implied by the statements herein.
Analyst/Investor Conference Call Information
Hilton Group will conduct a conference call for investors and analysts December 29 at 4:30 p.m. London time (11:30
a.m. in New York). Call-in number 44-0207-162-0025, passcode 688858.
Hilton Hotels Corporation conducted a conference call yesterday, December 29, for investors and analysts at 1:00
p.m. Eastern time (6:00 p.m. in London). Media may participate in a listen-only mode. Call-in numbers: 866-383-8119
(domestic)/617-597-5344 (international), passcode #43013264. A replay of the call will be available by telephone
until Thursday, January 5, 2006 at 8:00 p.m. Eastern time (5:00 p.m. Pacific.) To access, dial 888-286-8010 (domestic)/617-801-6888
(international), passcode #43013264. Additionally, a replay will be available indefinitely on hiltonworldwide.com.
The power point presentation management will review is available at www.hiltonworldwide.com; click the investor
relations tab, then click on HHC/HI Transaction link.
Media Conference Call Information
Hilton Group conducted a conference call for media December 29 at 5:15 p.m. London time (12:15 p.m. in New York).
Call-in number 44-0207-162-0025, passcode 688859.
Hilton Hotels Corporation conducted a conference call yesterday, December 29, for news media at 3:00 p.m. Eastern
time (8:00 p.m. in London). Call in numbers: 866-831-6234 (domestic)/617-213-8854 (international), passcode #98092383.
A replay will be available indefinitely on Hiltonworldwide.com
Webcast Information
The conference call was also webcast simultaneously via Hilton's investor relations website. Investors or media
wishing to access the call on the web should log on to www.hiltonworldwide.com,
click the investor relations tab and click on the HHC/HI Transaction link.
Access to Additional Information
Investor presentation, fact sheets, executive biographies and photos are available at www.hiltonworldwide.com, click the investor relations tab, then click on HHC/HI Transaction
link.
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Contact: Hilton Hotels Corporation Atish Shah (Investor Contact), 310-205-8664 Atish_Shah@hilton.com or Kathy Shepard (Media Contact), 310-205-7676 Kathy_Shepard@hilton.com or Marc Grossman (Corporate Affairs), 310-205-4030 Marc_Grossman@hilton.com http://www.hiltonworldwide.com
Source: Hilton Hotels Corporation