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Hilton Hotels Corporation to Acquire Lodging Business of Hilton Group plc

Travel News Asia 30 December 2005

Hilton Hotels Corporation (HHC) is to acquire the lodging assets of Hilton Group plc (known collectively as Hilton International or HI) for approximately GBP 3.30 billion (or US$5.71 billion) in an all-cash transaction. The transaction is expected to close in the first quarter of 2006. Consummation of the transaction is subject to a number of conditions, including receipt of certain competition and governmental clearances, and the approval of Hilton Group shareholders.

The Hilton Group will retain its gambling and betting business and is expected to be renamed Ladbrokes plc.

Upon completion of the transaction, HHC will be one of the largest and most geographically diverse lodging company's in the world, with nearly 2,800 hotels and 475,000 rooms in 80 countries, operating under the brand names: Hilton, Conrad, Doubletree, Embassy Suites, Hampton Inn, Hilton Garden Inn, Homewood Suites by Hilton, Scandic and Hilton Grand Vacations Club.

Included in the acquisition are 40 hotel properties currently owned by HI (most of which are in the UK and Europe,) 200 leased properties, approximately 160 fee contracts (mostly management contracts) and approximately 80 LivingWell Health Clubs (most of which are managed.) HHC will also acquire in the transaction full ownership of Hilton HHonors Worldwide and Hilton Reservations Worldwide, which have been 50/50 joint ventures with HI and managed as part of the strategic alliance between HHC and HI. HHC will also obtain worldwide ownership of the luxury Conrad Hotels brand, which has operated as a joint venture between the two companies since 2002.

"This transaction represents the final and logical step in a process that began in 1997 with the signing of our strategic alliance, and is a unique opportunity to once again position HHC as a global lodging industry leader for the first time in more than 40 years," said Stephen F. Bollenbach, HHC co-chairman and chief executive officer. "With the current strength of our business in the U.S., our strong balance sheet, the beginning of a hotel industry recovery in the U.K. - which accounts for about a third of HI's income - and the success we've had in working together with HI for eight years on such programs as Hilton HHonors, Hilton Reservations, Conrad development and technology initiatives, the time is right to put these two great organizations together."

David Michels, chief executive of Hilton Group plc, said, "I am very proud of the Hilton brand, which has consistently been acknowledged as one of the world's leading brands. Our customers can look forward to enjoying even more opportunities as a result of the combined strengths of the brands."

HHC noted that the strategic benefits of the transaction include:

-- making HHC a true global company and competitor;
-- enabling the company to fully control the flagship Hilton brand on a worldwide basis;
-- opening expansion opportunities for all Hilton Family brands in all parts of the world;
-- opportunity to implement its OnQ system throughout the world;
-- enhancement of the company's portfolio, including a number of world-class resorts;
-- diversification of earnings and cash flow outside the U.S., and 
-- further stabilizing earnings by increasing income from managing, leasing and franchising.

The company anticipates significant growth opportunities for its worldwide system for many of its brands through franchise and management agreements. The current HI development pipeline consists of signed contracts for 58 hotels with 14,000 rooms. HHC's development pipeline currently consists of 520 hotels and approximately 64,000 rooms.

"Brand development is becoming a more accepted concept internationally, providing exciting opportunities for all our brands in many important markets around the world," Mr. Bollenbach said. "There is an appetite among global hotel owners for strong brands in the full-service, focused-service and all-suite segments, and our brand portfolio is uniquely positioned to fill that need."

Consistent with its successful asset disposition strategy in the U.S. - which has resulted in 20 hotels being sold year-to-date for a total of more than $1 billion - while retaining long-term management or franchise contracts, HHC plans to continue the international asset disposition program currently being undertaken by HI, retaining management or franchise agreements. Proceeds from asset sales completed by HHC after the transaction will be used to repay debt.

The transaction will be financed with cash on hand at the time of the closing (estimated to be approximately $1.2 billion,) and a new bank facility. The financing is led by Bank of America and UBS.

The combined company will be headquartered in Beverly Hills, California, with Mr. Bollenbach as co-chairman and chief executive officer, Matthew J. Hart as president and chief operating officer, Robert M. La Forgia as senior vice president and chief financial officer, and the remainder of the HHC senior management team remaining in their current positions. Ian R. Carter, currently chief executive of Hilton International, will join HHC as executive vice president and chief executive officer of Hilton International, with responsibility for managing international operations reporting to Mr. Hart. Thomas L. Keltner, executive vice president and president of HHC's brand  performance and development group, continues reporting to Mr. Hart in that position.

See other recent news regarding: Hilton

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