Published On: Thu, Dec 12th, 2013

Hilton Worldwide Holdings IPO Priced Wednesday Raises $2.4 Billion

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Hilton Worldwide Holdings (HLT) yesterday priced its eagerly awaited initial public offering, selling a total of 117, 640, 624 shares at a price to the public of US$20 per share. The price achieved is close to the top of the US$18-21 per share price range previously estimated in its preliminary prospectus materials.

The total proceeds of the offering for the international hotel chain are nearly US$2.4 billion, gross, i.e. before deducting underwriting fees and costs of the issue. The shares are being issued under a final prospectus document filed with, and now accepted by, the Securities and Exchange Commission (SEC).

This hugely successful offering is good news for Hilton and very good news for its primary shareholders, including the private equity firm that controls it Stephen Schwartzman’s Blackstone Group (BX).

Blackstone executed an extraordinary operational recovery, after completely botching their entry into the industry when they bought in to the company at an inflated price at the peak of the leveraged buyout (LBO) craze, just prior to the last recession in 2007. So for them this result is especially sweet.

It is also, frankly, good news for America as well, representing as it does one more indication of the recovery of the business and financial system in the United States from some very dark times just four or five years ago.

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Image of the new NYSE listing symbol proudly posted on Hilton Worldwide’s web site this morning

Hilton Worldwide itself sold 64, 102, 564 of new shares under the offering, for gross proceeds of almost US$1.3 billion. The cash paid for these will then flow into the company’s treasury as new money after paying underwriters fees and costs of the issue.

The company therefore intends to use the net proceeds from the offering to repay about $1.25 billion of some of its term loan borrowings outstanding under its senior secured credit facilities.

To complete the issue, certain selling shareholders offered the remaining 53, 538, 060 shares – about 10% more than originally expected as demand for the issue was extremely strong.

The selling shareholders are primarily former holders of debt of the company, who received shares in exchange when Blackstone succeeded in restructuring US$13 billion of its debt prior to the IPO.

It is expected that the shares will begin trading on the New York Stock Exchange today under the stock symbol “HLT”, and the offering is expected to close on December 17, 2013.

The Blackstone Group, who led Hilton Worldwide’s privatization in 2007, are continuing to retain their entire stake in the company and will, on a diluted basis, still own about 76% of Hilton Worldwide after the issue.

Deutsche Bank, Goldman, Sachs, BofA Merrill Lynch, Morgan Stanley, J.P. Morgan and Wells Fargo Securities were the lead underwriters for the offering.

Having bought the company at the top of the market in 2007 for US$26.7 billion, and suffered through the recession this IPO now represents a major vindication for Blackstone. When the IPO begins trading later today the company will have an equity market capitalization of about US$20 billion.

Blackstone’s own average cost for the 750 million shares that comprise its own equity stake, is about US$9 per share so it will be showing an initial paper profit of just over US$8 billion as trading commences. If the shares then trend upwards, which the demand for the offering suggests could happen, Blackstone would make even more, though again of course only on paper.

Blackstone currently has five of its representatives as Directors on Hilton’s nine member Board of Directors, including their head of real estate Jonathan Gray who acts as the Chairman of Hilton Worldwide.

Toughing it out during the recession, with Blackstone’s implicit imprimatur on the company, and executing a counter-cyclical policy of investing substantial capital expenditures in the business, has vindicated Hilton Worldwide’s executive team led by then new CEO Christopher J. Nassetta. He carried out the company’s business strategy of seeking out international growth through the recession, and investing in extensive property refurbishments, all coming at the expense of their competitors.

With net debt of just over US$12 billion remaining after all the dust settles, too, Hilton Worldwide will now also have just the balance sheet it needs to continue to reinforce its leading position as the world’s largest hotel operator.

 

About Blackstone Group

The Blackstone Group was founded in 1985 by Stephen Schwarzman and Peter Peterson, who had been colleagues at Lehman Brothers. Since that time, Blackstone has evolved into one of the world’s largest and most successful publicly listed international investment firms.

Schwarzman joined Lehman Brothers immediately upon graduating from business school, then climbing up the corporate ladder there to eventually become head of Lehman Brothers’ global mergers and acquisitions team.

In 1985 Schwarzman left Lehmans, going into partnership with his former colleague Peter Peterson to form the Blackstone Company, which initially focused on brokering large-scale mergers and acquisitions before moving into property ownership and investment management.

Today Blackstone Group is one of the world’s leading private equity investment and advisory firms. Blackstone’s alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds.

Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. Through its different investment businesses Blackstone has assets under management of more than US$200 billion.

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