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Hilton Raises $2.5B IPO; Dismisses Franchisees

Hilton CEO Christopher Nassetta & Hilton team at the New York Stock Exchange. Photo/Ben Hider/NYSE Euronext

MCLEAN, Va.—Hilton Worldwide Holdings Inc., a worldwide chain of 3,700 largely franchised hotels and 150 company-owned hotels, raised $2.35 billion in a record-breaking initial public offering for a hotel franchisor. The company of ten brands from luxury to budget hotel chains opened for public trading on Thursday, December 12 on the New York Stock Exchange (NYSE) under the ticker symbol "HLT." On its debut day on Thursday, Hilton's 117.6 million shares climbed over 9 percent, from $18 to $21 per share.

Hilton Worldwide president and chief executive officer Christopher J. Nassetta celebrated the company's listing by ringing the opening bell along with seven hotel team members and executives from the company, as well as majority shareholder Blackstone. "On behalf of all Hilton Worldwide Team Members, I am thrilled to celebrate our company's reentry into the public market," said Nassetta. "In 1947 we listed on the New York Stock Exchange for the first time and are excited to renew our partnership with them to further build on our 94-year legacy as the preeminent global hospitality company."

Little mention of franchise owners

In the SEC filing for its initial public offering, the firm simply states, "We intend to use the net proceeds from this offering to repay certain of our then outstanding indebtedness. Any remaining net proceeds will be used for general corporate purposes."

There is no declaration on how franchises might be supported with the new-found money.

When asked how franchise owners within the Hilton system will benefit from the public offering, hotel industry and franchise consultant Stanley Turkel emphatically states, "[There are] no benefits whatsoever." The author of Great American Hoteliers: Pioneers of the Hotel Industry, which has a chapter devoted to the founder of the chain, Conrad Hilton, thinks that Hilton and Wall Street investors have skipped a beat when it comes to a chain that consists of more than 3,000 franchises. Turkel points out how little Hilton makes mention of the franchise owners in interviews, press releases and its plans for them. He thinks it is a slap in the face to these multimillionaires and leaders of their communities. "It is a mark of their disdain for the franchise owners who own and manage Hilton branded hotels," says Turkel.

"Asset-light" model

After buying the company for $26 billion right before the Great Recession, Blackstone Group LP hung onto the firm for six years as it expanded by a third the room count of its ten hotel brands. During tough times in obtaining credit, its asset-light model of minimizing company-owned expansion while increasing room growth through franchises required little to no capital investment from Blackstone. Six years later, the private equity firm looks to see an $8.5 billion net value gain through yesterday's IPO. Hilton's value is up by $7 billion.

"We're delighted to welcome Hilton Worldwide in joining the NYSE's community of esteemed companies," said Scott Cutler, Executive Vice President & Head of Global Listings, NYSE Euronext. "We look forward to a long-lasting partnership with the company and its shareholders."

Barclays is the Designated Market Maker (DMM) for the company's stock.

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