Blackstone finds room for $26bn buyout of Hilton

Blackstone is buying Hilton Hotels Corporation for $26 billion, adding almost half a million hotel rooms to its burgeoning global hospitality empire.

The newly-floated private equity group has agreed to pay $47.50 a share, representing a 40 percent premium to the price at the start of the week.

The takeover by Blackstone, whose shares have been slipping since its IPO on June 22, is being carried out by its hugely successful real estate division – the best-performing part of its business with annualised returns of 38.3 percent since 1991 – in conjunction with the main buyout team.

If the deal completes as expected towards the end of the year, it will be another feather in the cap for Jonathan Gray, Blackstone’s head of real estate in the US.

The top dealmaker, who is still in his 30s, also orchestrated the $39 billion take-private of US office REIT Equity Office Properties earlier this year – which was briefly the largest private equity deal ever agreed, as well as the largest real estate transaction.

Gray said: “It is hard to imagine a better strategic fit for us than Hilton. This transaction is about building a premier global hospitality business.”

Blackstone already owns 100,000 hotels rooms across the US and Europe, including La Quinta Inn and Suites which it bought in January last year. It has pumped $1 billion into redevelopment of properties within its luxury brand LXR Luxury Resorts and Hotels.

The acquisition of Hilton gives it a further 2,800 hotels in 76 countries, trading under a variety of brands such as Conrad, Embassy Suites and The Waldorf-Astoria Collection as well as the eponymous Hilton chain.

In a statement, the firm said the deal is not contingent on financing arrangements as a series of banks are underwriting the investment. They are Bear Stearns, Bank of America, Deutsche Bank, Goldman Sachs and Morgan Stanley, all of which also acted as advisors.

Shares in Blackstone have fallen since its IPO, but this has not halted the buyout juggernaut. Not only is it about to snap up Hilton, but this week a report in the Wall Street Journal also linked it with a deal to buy a significant minority stake in Chinese petro chemical firm China National BlueStar Group for $400million. That acquisition takes on extra significance given that the Chinese government invested $3bn in Blackstone’s flotation.