BX to buy HLT--WHY?
What's your take on the proposed acquisition of Hilton Hotels by Blackstone?
Could it be:
a) behavioral/herding re/action?
b) augmentation of hotel/real-estate portfolio, hence scale economies/pricing power?
c) there is no coming downturn in the market, we live the new "normalcy"?
d) in case of downturn, cash flow is king?
e) HLT, just like other assets bought by top PE entities, are actually under-priced?
f) cash is burning holes in BX's pockets?
g) by replacing staid management/vision, Hilton can become a scaled-up Ritz Carlton?
h) chutzpah?
i) hubris?
or j) you name it...
Good Answers (3)
Morgan F
founder, portifiolio manager of manchester explorer fund LP,
Best Answers in: Hedge Funds (2), Equity Markets (1)
consider:
building costs are skyrocketing.
growth in business travel far exceeds growth in current number of hotel rooms.
hotels have plenty of free cash flow and relatively low incremental costs of revenue for additional guests.
so you grab hilton, add it to the portfolio you already have, and get a more levered, bigger, more oligopolistic, set of offerings. hotel loyalty is now driven by affinity programs. rack rates are very high (check travelocity) but if you are starwood preferred or whatever, you pay less than half that. the only time travelers leave you is if you don;t have a property where they need to be. so grow your footprint. this acquisition makes them #2 worldwide (in terms of rooms) to intercontinental.
the risk is that, as we saw in 2000, an economic downturn can really drive business travel down. if that eventuality, they may wind up looking foolish as they top tick a market. then, leverage can hurt. until we know how much debt they are going to pile onto this, it's hard to tell just how risky this is going to be.
John K
MMO Industry Veteran, Free To Play Consultant
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(b)
As Blackstone has been aggressive in the REI arena particularly large commercial properties.
and
(d) There is a continuous cashflow with hotel properties wheras with other BX RE assets not quite.
I don't know about undervaluation...but currently when considering their financials BX's offer seems about right.
Dan Y
Director - US Head of Sales at Realtick / Townsend Analytics
Best Answers in: Equity Markets (2)
PE firms like BX buy companies that are strong in free cash flow and have little debt. Then they lever them up. They pretty much leave their companies to run themselves - they don't care about the day to day.
Clarification added July 10, 2007:
Also, BX owns Orbitz, Orbitz for Business, and Travelport. This would help streamline their travel and leisure businesses together.
