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Hilton eyes Promus buy
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September 1, 1999: 2:31 p.m. ET
Hotelier admits to talks; analysts say high price could hurt Hilton net
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NEW YORK (CNNfn) - Hilton Hotels Corp. said Wednesday it is in talks about a merger with rival hotelier Promus Hotel Corp., but analysts warned a hefty premium could hurt Hilton's earnings ahead.
The announcement comes in the wake of a Wall Street Journal report citing people familiar with the talks who said Hilton would pay "significantly more" than Promus' $2.4 billion market value as of Tuesday.
Hilton wouldn't give any details of the negotiations. Promus, in a statement, said it is in talks about a possible "business combination," but didn't give further details -- including any names of who else is involved in the discussions.
Shares of Memphis, Tenn.-based Promus (PRH), operator of the Embassy Suites, Doubletree and Hampton Inn chains, shot up 2-15/16, or 10 percent, to 32 in Wednesday afternoon trading.
Shares of Hilton (HLT), which have struggled in recent months, fell 13/16 to 11-3/8 on Wednesday.
One analyst said Hilton's room for maneuvering may be limited, because any bid that tops $35 per share is likely to take a bite out of its earnings.
At first glance, said Prudential Securities lodging analyst Joseph Coccimiglio, "it looks like it would be difficult for Hilton to pay more than $35 a share. Beyond that, it would be dilutive to earnings."
Sources told the Journal that Hilton (HLT) is prepared to accept the hit to earnings that would accompany a deal.
The hotel industry has been struggling through a glut of rooms built up to meet the economic boom in recent years. Several industry leaders have seen their stock prices tumble as a result, and Hilton and Promus are no exception.
While that may whet the appetite of Hilton and Promus to strike a deal, Coccimiglio said another bidder such as Marriott International (MAR), which has a higher stock value to play with, could also try to strike a buyout deal.
Marriott International stock was up 3/16 to 34-7/16 in Wednesday afternoon trading.
Hilton boss Stephen Bollenbach is under pressure to do a big deal, the Journal reported, following the failed attempts to buy ITT Corp. in 1997 and Patriot American Hospitality earlier this year.
There are several advantages from such a deal, Coccimiglio said. By purchasing Promus, Hilton would tap into the fast-growing market for extended-stay lodging and boost its role in franchising.
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Hilton Hotels
Promus
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