Goldman Earns Most in Hilton IPO With More Than Fees

Goldman Sachs Group Inc. isn’t the lead underwriter on Hilton Worldwide Holdings Inc.’s initial public offering. The investment bank still stands to reap more than any other firm handling the largest-ever hotel IPO.

Goldman Sachs will generate more than $117 million in proceeds from the $2.35 billion deal as a stakeholder and lender, based on a description of the bank’s holding in the sale’s prospectus and Hilton’s statement on the final terms. That’s on top of fees as an underwriter of the deal.

The windfall stems from the firm’s six-year involvement with Hilton’s buyout and return to the stock market. The bank was among lenders providing $20.6 billion of mortgage and mezzanine debt to finance Blackstone Group LP’s 2007 purchase of the hotel chain. A 2010 debt restructuring gave Goldman Sachs a stake in Hilton, and the firm served as a lender in credit facilities that are being repaid with IPO proceeds.

Goldman Sachs, led by Chief Executive Officer Lloyd C. Blankfein, 59, isn’t alone in having multiple roles in the sale. New York-based Morgan Stanley also had a stake in the Hilton holding company and was set to receive stock in the hotel operator or cash from the IPO, the prospectus shows. That investment is held by Morgan Stanley’s asset management unit, according to a person briefed on the matter, who asked not to be identified because details of the holding aren’t public.

Michael DuVally, a New York-based spokesman at Goldman Sachs, declined to comment, as did Mary Claire Delaney at Morgan Stanley.

Additional Stock

The prospectus lists 24 underwriters, led by Deutsche Bank AG, with Goldman Sachs, Bank of America Corp. and Morgan Stanley also serving in active roles.

Hilton could raise an additional $353 million if underwriters sell extra shares to meet demand, increasing the total amount of the IPO to $2.7 billion. That would make it the second-largest U.S. IPO this year, after Plains GP Holdings LP, an affiliate of an oil and gas pipeline company that raised $2.91 billion in October.

Hilton is the biggest IPO in which Frankfurt-based Deutsche Bank had the lead role, according to data compiled by Bloomberg. The second-largest was in 1999, when the firm led Clear Channel Communications Inc.’s debut, raising $1.4 billion, the data show.

Excluding Hilton, U.S. IPOs paid underwriters an average fee of 5.5 percent this year through Dec. 10, according to the data. Firms sometimes take a smaller share of proceeds for high-profile sales that may generate future business.

Goldman Sachs previously sold stakes in companies whose IPOs it helped to underwrite. The investment bank raised $226 million selling stock in Russian consumer lender TCS Group Holding Plc’s October offering. The bank and funds it managed sold $1.09 billion of shares in Facebook Inc.’s IPO in May 2012.

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