Hilton Worldwide Holdings Equity Value: $18 – $21bn ($18 – $21 per share, greenshoe not considered in EV)
The Blackstone Group, AUM (as of 2012): $210bn
Hilton Worldwide Holdings, the world largest hotel operator with presence in 90 countries, 157 directly owned hotels and 4,041 hotels under management, is planning an initial public offering of 11.5% of its capital on the NYSE. The transaction will raise up to $2.7 billion in proceeds, valuing the company’s enterprise value at about $32.5 billion at the top of the price range. This deal will become the largest lodging IPO, surpassing 2009’s Hyatt Hotels Corp’s IPO of $1.09 billion, and the second IPO of 2013 by size. The IPO is expected to be priced on Dec. 12th, and the price range is $18 – $21 per share.
The Blackstone Group is Hilton’s largest shareholder: it is a private equity management firm and a financial advisor and it currently owns 76.5% of the company. Blackstone operates in five business segments: private equity, real estate, hedge fund solutions, credit businesses and financial advisory. It took Hilton private before the financial crisis in 2007, executing a $26.7 billion LBO at 40% premium to the stock price of that time (13x estimated 2008 pre-tax cash flow). Blackstone itself invested about $6.4 billion on Hilton as a general partner of the fund for the buyout. The public listing is estimated to increase the value of this stake to $15.4 billion.
The timing of this IPO is interesting because publicly listed companies in the lodging industry have finally cut the losses they incurred during the financial crisis this year, reaching the market valuations they had before the financial crisis. Hilton has already restructured its debt twice since 2007, and it has performed very well, growing its operations by 30% over six years. If we remember the 40% premium that Blackstone paid at that time, it will be interesting to see whether the PE firm will be able to profit from a potentially disastrous investment.
112.8mln shares will be sold in the public listing: existing shareholders are selling about 48.7 million shares, while Hilton will sell the remaining 64.1 million shares. Among the selling shareholders there is a unit of Goldman Sachs Group Inc., which is one of the underwriters and a Hilton’s lender as well. Blackstone is not expected to sell any shares during the IPO. Singapore’s sovereign-wealth fund will own 5% after the listing and also Hilton’s CEO Chris Nassetta will keep about 1% of the firm.
Hilton has $11.8 billion in debt on its balance sheet and it will use $1.25 billion for debt repayment. In 2010 the company already underwent restructuring of its debt, during which creditors had to convert $2.1 billion of junior mezzanine debt into preferred equity. The IPO will convert these preferred shares into common equity.
The ratio of debt over equity will be about 0.5 after the IPO, a value which is sensibly higher than those of peers like Starwood Hotels and Hyatt. Creditors instead will be given the opportunity to exit the equity exposure they took in the company after the 2010 debt restructuring.
Hilton’s revenue for the first nine months of the year gained 2.2% to $7.1 billion from a year earlier, while net income jumped 34% to $389 million. The company’s revenue and profitability have increased sharply since the financial crisis. The company had revenue of $8.9 billion in 2008 and losses of $5.7 billion.
The deal is being led jointly by Deutsche Bank, Morgan Stanley, Goldman Sachs and Bank of America. The four banks together with JP Morgan have also arranged the debt refinancing. The IPO will be underwritten by a syndicate of more than 20 financial institutions.