Could yet another major corporation be about to disappear from the local scene? Investment circles were buzzing last week about Beverly Hills-based Hilton Hotels Corp. possibly being in negotiations to be acquired by real estate investment firm Colony Capital Inc., which has significant hotel holdings in the United States and overseas.

Neither Hilton nor Colony Capital officials would comment on the buzz coming from well-connected sources in the finance industry. Adding fuel to the speculation was the recent large purchase of Hilton shares by company Chairman Barron Hilton, who seldom engages in trades of his company's stock.

Industry insiders said such a deal, if it were to happen, would make a lot of sense for both parties.

"A deal between Colony Capital and Hilton wouldn't completely surprise me," said Mike Happel, an analyst with Morgan Stanley Dean Witter. "Colony Capital has made a number of major investments in hotel properties in the past, and it would seem that Hilton's low valuation would make it an ideal takeover target for them."

Colony Capital, also based in Beverly Hills, is a private equity fund with more than $6 billion in assets. Headed by Chairman and Chief Executive Thomas Barrack, it has a strong track record as an opportunity fund that specializes in finding and buying undervalued assets at bargain prices and waiting for the market to turn around.

Right now, Hilton has all the markings of an undervalued company, with a price/earnings ratio of 14.3, even though its stock price has been showing some signs of a turnaround in recent months.

For almost two years, Hilton's market value had been in a state of steady decline, as expensive acquisitions ate away at its earnings growth. Hilton's shares, which traded hands for more than $20 in June 1998, had fallen as low as $6.38 by early March.

But since then, on the strength of better-than-expected earnings, the share price has rebounded, and Hilton stock was trading at around $9.50 a share as of late last week.

A takeover bid from Colony Capital, or any other suitor, might be the best news for Hilton shareholders in quite some time, because any buyer would likely pay a steep premium over the company's current share price.

"Whoever wants to buy Hilton will have to pay for the name," said Kevin Calabrese, an analyst with Argus Research Corp. "And the price they'll have to pay will be significantly higher than the current market value."

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