Hilton Hotels Corp. said on Thursday that it agreed to buy the hotel division of UK-based Hilton Group Plc for $5.7 billion in cash, creating the largest lodging company in the world.
The transaction, which is expected to close in the first quarter of 2006, is subject to various governmental clearances as well as the approval of Hilton Group shareholders.
Upon completion of the deal, Hilton Hotels will have nearly 2,800 hotels and 475,000 rooms in 80 countries, operating under an assortment of brand names, including Hilton, Conrad, Doubletree, Embassy Suites, Hampton Inn, Hilton Garden Inn, Scandic and Hilton Grand Vacations Club.
The transaction will be financed with cash on hand estimated to be approximately $1.2 billion and a new bank facility. The deal is expected to be accretive to Hilton's 2006 earnings. Hilton expects to realize approximately $30 million in annual cost savings going forward.
Hilton Group, also known as Hilton International, will retain its gambling and betting business and is expected to be renamed Ladbrokes Plc, Beverly Hills-based Hilton Hotels said in a statement.
Included in the acquisition are 40 hotel properties currently owned by Hilton Group, most of which are in the UK and Europe; 200 leased properties; nearly 160 management contracts; and approximately 80 LivingWell Health Clubs, most of which are managed. Hilton Hotels will also acquire the luxury Conrad Hotels brand, which has operated as a joint venture between the two companies since 2002.
The current Hilton Group development pipeline consists of signed contracts for 58 hotels with 14,000 rooms; Hilton Hotels' pipeline consists of 520 hotels and approximately 64,000 rooms.
The combined company will be headquartered in Beverly Hills, with Hilton Hotels' Stephen F. Bollenbach continuing as co-chairman and chief executive. Concurrent with signing the agreement, Bollenbach resigned his position on the board of Hilton Group.
Ian R. Carter, currently chief executive of Hilton International, will join the combined company as executive vice president and chief executive of Hilton International, with responsibility for managing international operations. Hilton Hotels expects to retain the majority of Hilton International's operating and development team as well as other executives.
The deal reunites the international and North American Hilton hotel brands under one roof in the U.S. for the first time in more than 40 years. Hilton Hotels sold the international rights to the Hilton brand in 1964, and the companies had been separate ever since. The two companies shared an alliance to cover joint marketing, reservation and loyalty programs, and had discussed a merger for a number of years.
Hilton Group began mulling an offer from Hilton Hotels in mid-October.
In 1987, Ladbroke Group Plc acquired the Hilton business outside the U.S., expanding its chain of 67 hotels. In 1999, when it acquired the Scottish casino and hotel operator Stakis for nearly $2 billion, Ladbroke Group changed its name to Hilton Group Plc.
Shares of Hilton Hotels rose 7.6 percent to settle at $24 on Thursday.
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