Hilton stock jumped 13 per cent yesterday after the UK-based international hotel and gambling operator confirmed that it is in talks with Hilton Hotels Corporation of the US over a $5.2 billion (€4.3 billion) sale of its hotel business.
The deal would reunite the two Hilton companies, which were split in 1964 to leave HHC to focus on the US and Hilton with other international markets.
The deal would also split Hilton's hotel business from Ladbrokes, the UK bookmaker that the company owns. Negotiations between the two companies are at an advanced stage. Hilton said yesterday it had received an indicative offer from HHC, and that talks were ongoing and subject to a number of issues.
The discussions have centred on an outright purchase of the Hilton hotel business, with HHC expected to pay cash to seal the transaction.
Hilton's shareholders would receive the cash and also continue to own shares in a listed group, which would be renamed Ladbrokes.
As the UK's biggest bookmaker, Ladbrokes would continue to be a FTSE 100 company. Hilton shares rose 13 per cent to 345p yesterday in London.
The catalyst for the talks has been an improvement in hotel trading conditions in the US.
HHC's inability to expand internationally has been another factor, while asset disposals by Hilton has made the group a more affordable purchase. Recent analyst reports have valued Hilton's hotel business at over £3 billion (€4.39 billion).
The cash return could be as high as 225 pence per Hilton share if shareholders were to get the full £3.6 billion price which a source close to the matter said was being discussed.
"This is a great deal if it comes to fruition. It confirms our view that the US hotel operators are looking to come to Europe to diversify their income streams and it makes InterContinental vulnerable," said analysts at ABN AMRO.
Analyst Lou Pirenc at Morgan Stanley described the move as a "marriage made in heaven" and said that a standalone Ladbrokes would deserve to trade at a premium to William Hill.
An industry source said a deal was expected to be thrashed out before the end of the year, with the emphasis on boosting revenue for the US Hilton, as there would be little cost savings apart from closing one head office.
The Hilton business split in 1964 with the US company running all Hilton hotels in the United States and the UK company operating the brand elsewhere.
The two share an alliance to cover joint marketing, reservation and loyalty programs and have for a number of years discussed a merger.
Because of the close links between the two groups, analysts say a counter bid would be very unlikely, but they expect other US companies like Marriott International and Starwood Hotels & Resorts Worldwide to look to Europe and Asia, where they have already been expanding.
The US Hilton company was encouraged to approach the British group by an improving US hotels market and the need for it to expand outside its domestic market, analysts said.
