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Blackstone?s Hilton joins ranks of biggest deal paydays

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December 12, 2013

Blackstone?s Hilton joins ranks of biggest deal paydays

Hilton, Photographer: Victor J. Blue:BloombergHilton Worldwide Holdings Inc., once seen as a black mark on?Blackstone Group LP (BX)?s record in real estate, is poised to generate one of the two biggest private-equity profits of all time.

Blackstone has a paper profit of $8.5 billion in the McLean, Virginia-based hotel operator?s initial public offering today. That?s second only to the $10.1 billion of gains that?Apollo Global Management LLC (APO)?has had from its 2008 investment in chemicals producerLyondellBasell Industries NV (LYB), according to data compiled by Bloomberg. Hilton would become No. 1 if the shares rise more than $2 above its IPO price.

The turnaround of the world?s largest hotel chain marks a triumph for New York-based Blackstone, which bought Hilton at the end of the 2007 buyout boom only to see property values and hotel occupancies plunge during the credit crisis that ensued. The rebound reflects Hilton?s strides under Chief Executive Officer Christopher Nassetta in increasing revenue and profit, as well as a recovery in the lodging and capital markets.

?With Hilton, they demonstrated the best attributes of what private equity advertises itself to be, which is finding and improving companies with an intensive dose of new and better management,? said Mike Kirby, chairman of Green Street Advisors Inc., a?Newport Beach, California-based property-research firm. ?The commercial real estate market has had an amazing recovery from its near-death experience, and that clearly helped.?

Blackstone Stake

Hilton and existing shareholders sold 117.6 million shares at $20 each in the IPO. The sale was more than nine times oversubscribed, a person with knowledge of the matter said.

Blackstone, the world?s largest manager of alternative assets such as private-equity funds and real estate, didn?t sell in the IPO and holds about 750.6 million shares after the offering, according to a regulatory filing. That represents a 76.2 percent stake valued at $15 billion.

Based on the roughly $6.5 billion that Blackstone and its investors have put into Hilton, the valuation gives the firm an unrealized gain of $8.5 billion.

In nominal terms, the Hilton profit would surpass the $7 billion that Henry Kravis?s KKR & Co. reaped from the 1986 buyout of supermarket chain Safeway Inc. after selling most of its stock in the 1990s, and a similar return a group led by financier J. Christopher Flowers made from the 2000 takeover of the predecessor to Tokyo-based Shinsei Bank Ltd.

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Source Bloomberg,

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