Chinese conglomerate HNA Group is checking in to Hilton Worldwide for an indefinite stay.
The closely held company agreed on Monday to pay $6.5 billion for a 25 percent stake in the hotel chain, which is second in room count only to Marriott International, which you may recall just bought Starwood Hotels & Resorts. The transaction gives Hilton's longtime private equity owner Blackstone Group the ability to unwind more than half of its remaining stake at a premium, rather than trickling out smaller blocks of shares on the open market, enhancing its returns from what's already been labelled as the best leveraged buyout ever.
More notably, it gives HNA -- and China Inc. -- a claim on a trophy hotel business, after Anbang's aborted tilt for Starwood. It's a meaningfully sized deal and enables HNA Group to further diversify away from its regional airline roots and enhance its ability to profit from the rise in big-spending outbound Chinese tourists, who totaled 120 million last year. Think about it like this: Tourists can reasonably book a trip with an HNA travel agent, fly on one of HNA's affiliated airlines and stay at a hotel in which it has a stake. Aside from Hilton, the company has signed a deal to buy Carlson Hotels (which owns a majority stake in Belgium's Rezidor Hotel Group, the owner of the Radisson brand) and holds a nearly 30 percent stake in Spain's NH Hotel Group.
Hilton shares jumped in pre-market trading Monday, but were basically flat by afternoon. That's odd, considering the HNA purchase price pegs Hilton's stock at a 15 percent premium to Friday's closing level. The Chinese company is presumably willing to pay up because it believes in the chain's long-term value -- but apparently Hilton's other shareholders aren't willing to go quite that far yet, preferring to wait until it spins off its real estate and time share arms.
Still, it's a more logical deal for HNA than others the conglomerate has pursued lately. Including the Hilton stake, HNA and its various arms have announced transactions worth almost $40 billion over the past 18 months and earlier this month, inked a $10 billion deal for CIT's aircraft-leasing arm. That total can reasonably be expected to grow, supported by the company's cash pile of $19.3 billion as of June 30 and its access to nearly free borrowings for the time being.
More importantly, HNA is only one of a swath of cash-rich Chinese acquirers that have become increasingly comfortable depositing large break fees ($500 million in this case) into escrow accounts as a way to legitimize their commitment to seeing a deal through. Their broad appetite for both controlling and minority stakes across almost all sectors has shown few signs of abating. Willing owners of both closely held and public companies could do worse than seek introductions before the tide turns.
Peter Grauer, chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director at Blackstone.
--With assistance from Nisha Gopalan in Hong Kong.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
HNA's stake purchase price values Hilton at a forward EV/Ebitda multiple of 11.5, a premium to peers like Marriott at 9.7 and Hyatt at 9.1.
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