July 3 (Bloomberg) -- Hilton Hotels Corp., the chain founded by Conrad Hilton 88 years ago, agreed to be purchased by buyout firm Blackstone Group LP for about $20 billion, the biggest acquisition of a hotel company.

Blackstone will pay $47.50 for each share, the hotel chain said in a statement today. That's 32 percent more than its closing price today. Barron Hilton, Conrad's son and co-chairman of the company, will get $990 million for his 20.8 million shares.

Hilton, the second-biggest U.S. chain behind Marriott International Inc., has more than 2,800 hotels. Blackstone, which owns the La Quinta chain, is among private-equity firms that are buying hotel companies to profit from their cash flow and real estate holdings.

``It's a classic Blackstone play: the size, the asset class, the management and the brand,'' said Michael Pralle, who ran General Electric Co.'s GE Real Estate unit, with $59 billion in assets, before resigning in June to pursue other interests.

Including the assumption of debt, the transaction totals $26 billion.

Hilton shares rose $2.18, or 6.4 percent, to $36.05 in composite trading on the New York Stock Exchange before the announcement. Volume of 7.5 million shares was double the three- month daily average.

``It was an exceptionally cheap stock for a very strong portfolio,'' said Amit Kapoor, an analyst at Gabelli & Co. in Rye, New York, which owns about 5 million shares of the company.

No Other Bidders

Shares of Blackstone, which went public last month, rose 45 cents to $29.72. Blackstone owns more than 100,000 hotel rooms in the U.S. and Europe.

Hilton's outgoing Chief Executive Officer Stephen Bollenbach said in an interview that the company has ``seen no other bidders.''

The company has more than 480,000 hotel rooms worldwide under brands including Waldorf=Astoria and Doubletree.

What started in 1919 as a single property in Cisco, Texas, grew into a hotel dynasty including some of the richest people in the U.S. Forbes magazine estimated that Barron Hilton is worth $1.3 billion. His socialite granddaughter Paris last month served time in jail for parole violations in a drunk-driving case.

First Hilton

The first hotel with the Hilton name opened in 1925 in Dallas. Hilton purchased New York's luxury Waldorf=Astoria hotel in 1949.

In 1964, the company spun off Hilton International, then reunited with it last year by buying the lodging unit of U.K.- based Hilton Group Plc for $5.71 billion.

Blackstone's purchase eclipses the 1998 takeover of ITT Corp. by Starwood Hotels & Resorts Trust for $14.6 billion, including debt.

Since the end of 2002, both Hilton and Marriott shares have almost tripled as demand for rooms increased and rates rose. Demand growth declined this year, and revenue per available room, a measure of rates and occupancy, rose 5.1 percent in the first half of 2007, the slowest pace in at least three years, according to Smith Travel Research.

Hilton's 2006 net income climbed 24 percent to $572 million on revenue of $8.16 billion.

The company in May named Matthew Hart as chief executive officer to succeed Bollenbach, who plans to step down this year while remaining co-chairman through 2010. Bollenbach said it was too early to say what Hart's role would be.

No Property Sales

Blackstone said it didn't intend to make any ``significant'' property sales as part of the acquisition.

The perceived risk of owning Hilton bonds rose in recent weeks. Credit-default swaps based on $10 million of its bonds increased 12 percent since June 19 to $123,125, according to data compiled by Bloomberg. An increase in the five-year contracts, used to speculate on the company's ability to repay debt, indicates a deterioration in the perception of credit quality.

Buyout firms typically pay for acquisitions with borrowed money and use their cash flow to pay off the debt.

``Blackstone has been a very aggressive investor in the hotel industry,'' said Robert LaFleur, an analyst at Susquehanna Financial in Stamford, Connecticut. ``Hilton is extremely complementary to that portfolio.''

Record Funds

More than 100 real estate funds may raise a record $69 billion this year, according to London-based Private Equity Intelligence Ltd., a research firm. Morgan Stanley in June raised $8 billion for what's the largest high-return real estate fund and Goldman Sachs Group Inc. gathered $4 billion for a similar fund.

Blackstone raised more than $7 billion for a fund that's slated to top Morgan Stanley's when it closes later this year with about $10 billion of capital commitments.

Financing commitments were provided by Bear Stearns Cos., Bank of America Corp., Deutsche Bank AG, Morgan Stanley and Goldman, all of which served as financial advisers to Blackstone. Simpson Thacher & Bartlett LLP offered legal advice.

Hilton was advised by UBS AG and Moelis Advisors, the boutique investment bank opened yesterday by UBS's former top dealmaker in the Americas, Ken Moelis. Moelis resigned from the Swiss bank in March, though he remained an employee until June 30, after Blackstone began to negotiate its deal with Hilton. He declined to comment.

Sullivan & Cromwell LLP provided legal advice.

To contact the reporter on this story: Oliver Staley in New York at ostaley@bloomberg.net; Hui-yong Yu in Seattle at hyu@bloomberg.net

Last Updated: July 3, 2007 22:58 EDT