Key Blackstone hospitality transactions, 2004-present

July 2007: Agrees to acquire Hilton Hotels, valued at $26B

April 2007: Sells Extended Stay Hotels to Lightstone Group, valued at $8B

March 2007: Sells Budgetel to investment group, terms not disclosed

August 2006: Acquires Travelport, valued at $4.5B

March 2006: Sells Baymont Inn & Suites to Cendant, terms not disclosed

February 2006: Agrees to acquire Meristar Hospitality Corp., valued at $2.3B

January 2006: Sells a portfolio of Summerfield Suites to Global Hyatt, terms not disclosed

November 2005: Agrees to acquire La Quinta Inn & Suites, valued at $3.4B

October 2005: Sells the management and franchise business of Wyndham chain to Cendant, valued at $101M

August 2005: Launches LXR Luxury Resorts brand, a collection of hotels from different brands

June 2005: Agrees to acquire Wyndham International, valued at $3.3B

December 2004: Acquires Boca Resorts, valued at $1.3B

December 2004: Sells AmeriSuites (now Hyatt Place) to Global Hyatt, terms not disclosed

August 2004: Agrees to acquire Prime Hospitality, valued at $869 M

March 2004: Agrees to buy Extended Stay Hotels, valued at $3.9 B

"When it comes to hospitality, this is as exciting as they come."

So declared Bjorn Hanson, a principal with PricewaterhouseCoopers and one of the most looked-to analysts in the lodging industry, in describing last week's announcement that the Blackstone Group would be acquiring Hilton Hotels Corp. for $26 billion  -- $20 billion in cash and the assumption of $6 billion in debt.

The price was a record for the hotel industry.

Hanson indulged in some hyperbole, he said, because, "this deal combines a brand that has grown to be one of the biggest names in global hospitality with a company that has more investment in lodging than anyone else."

The deal, scheduled to close the fourth quarter of 2007, is subject to approval by Hilton's shareholders. Assuming it is approved, it will make Blackstone the world's largest hotel operator, with 600,000 beds, according to Paris-based MKG Consulting.

Blackstone has invested many billions in hotels in the last five years, including the purchase of MeriStar (a real estate investment trust, or REIT), La Quinta, Wyndham and Boca Resorts.

Other private equity firms have also made big plays. For example, Morgan Stanley acquired CNL, another REIT, for $6.6 billion a few months ago.

Blackstone also owns the Galileo GDS; consumer Web sites Orbitz and CheapTickets; and wholesaler Gullivers Travel Associates. It is seeking to buy Worldspan, as well.

While it is a brand long-associated with a family, Hilton has been publicly traded for more than 60 years. It will now become part of a private equity company. While Blackstone did recently make a public offering of its own stock, it was a limited offering.

The upshot, Hanson said, is that "Hilton will no longer have to worry about quarterly earnings reports."

Hilton's CEO, Stephen Bollenbach, said the deal would be good for the company's owners and operators. Hilton hotels are overwhelmingly owned by third parties, while Hilton manages and/or franchises branded properties.

Hotels in general have become prime targets of investors in recent years because of record profits and quiescent supply pipelines. Hilton became even more attractive after it repurchased Hilton International in 2006, reuniting the company 42 years after Hilton had sold off its international assets.

In the announcement, Blackstone said it intended to invest in Hilton properties. The company said that in the last three years it had invested about $1 billion in redevelopment capital for LXR alone and had grown the La Quinta brand by 45% since its acquisition in January 2006.

Hanson said that Blackstone had a record of being a "long-term player" that invested in its hotels. He said that for customers the result would be hotels that were "as good or better" than they are currently.

Blackstone intends to integrate Hilton brands, including Embassy Suites and Hampton Inns, into its other hotel holdings. Bollenbach said it was too early to say if that might include HHonors, Hilton's loyalty program.

However, one observer said that was doubtful because brands like La Quinta were not priced for such an expensive (for hotel owners) program.

Asked if current management would remain in place, Bollenbach replied that Hilton's management was one of the big attractions for Blackstone. He joked, "Also, they know I'm retiring so that's another plus." Hilton COO Matthew Hart is slated to take Bollenbach's place.

"We are working our way through a privatization cycle," said Hanson, who added that he foresaw at least one more big privatization deal and two or three smaller ones.

After that, he said, "the increased value of these companies will make it difficult for further privatization."

It's difficult to predict which company might be the next to be acquired, he said. Rumors have been floated periodically about other hotel giants, including Starwood and InterContinental Hotels Group.

IHG and Starwood declined to comment on the deal, saying they never commented on the activities of competitors. A spokesman at IHG did say it would be "business as usual" there.

Jim Butler, a well-known hotel industry lawyer who comments widely on lodging issues, said the deal "portends an unprecedented consolidation of the hospitality industry with potentially staggering consequences to hotel owners, guests and other stakeholders in the hospitality industry."

"The industry is in play," Butler said. "We have heard rumors about Marriott, Starwood, InterContinental, Orient-Express and a lot more. The industry still looks cheap to abundant capital."

In a conference call, Bollenbach called the buying price of $47.50 per share "an excellent price," a premium of 40% over the trading price as of last Monday.

He said that, including this deal -- assuming it concludes as planned in the last quarter -- Hilton will have delivered a 29% return on investment over the last five years, outperforming competitors.

Bollenbach called Blackstone "a great buyer" because it is a "sophisticated real estate player with a long track record, specifically in terms of lodging. They are large owners of brands with over 100,000 rooms ranging from midscale to luxury."

He said Blackstone bought Hilton because "they like our position in the industry, with our nine great brands, a global platform and experienced management."

Rob Haiman, senior vice president of development for Remington Hotels, which manages at least one of every Hilton brand, said the relationship began when Remington began to manage Embassy Suites, then still a part of Promus Corp.

When Hilton acquired Promus in 1999, Haiman said, "we were on good terms with Hilton, and when it came time to reflag a hotel, we would go with the company with which we had a good relationship. Also, they have terrific brands."

To contact reporter Harvey Chipkin, send e-mail to [email protected].

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