Blackstone's Hilton IPO could net $10bn profit

The New York firm put equity of around $6.5 billion into its takeover of Hilton six years ago and its stake could be valued at $15 billion based on the floatation price of the company’s shares.

Blackstone has taken Hilton Hotels public six years after taking it private for $26.7 billion at the peak of property values and the credit bubble.

The New York firm’s private equity and real estate teams worked together on the original deal, buying the global hospitality group with 2,800 hotels and 490,000 hotel rooms in 76 countries.

Since then, it has followed an international franchise expansion model and has grown it to 633,000 rooms with half of new rooms that were added in 2011 alone being outside of North America.

The IPO on the New York Stock Exchange has raised $2.35 billion – a record for a hotel company going public – as around 117.6 million shares sold for $20 each providing a paper profit to Blackstone and investors in the funds that made the acquisition of around $8.5 billion. However, Blackstone has not made any money yet as it is not selling any of its shares and will do so only gradually. It is said to have put in around $6.5 billion of equity and its shares in Hilton are worth around $15 billion.

The largest proportion of the acquisition equity was contributed by Blackstone Real Estate Partners VI, the $10.9 billion fund that closed in 2007. Lenders on the original deal were Bear Stearns, Bank of America, Deutsche Bank, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley.

Hilton operates 11 brands including the main Hilton brand, but also variations such as Hilton HHonors and Hilton Garden Inn, as well as Waldorf Astoria, DoubleTree and Conrad.

The president and chief executive of the company is Christopher Nassetta, who had already been working at Hilton for ten years before Blackstone took over the company.

When Blackstone took over Hilton, shareholders received $47.50 in cash for each share. The IPO price was pitched to new investors at between $18 and $21 each.

“There were some people who didn’t think this would work out but Jon Gray [head of real estate at Blackstone] and I never lost faith even when everything was upside down and the world was falling apart during the financial downturn,” Nassetta told the Financial Times.