Expect more wheeling-and-dealing in the hotel industry,
chief Stephen Bollenbach tells
Just a week after
unveiled its $26 billion bid for Hilton in the biggest-ever hotel buyout, Bollenbach foresees greater consolidation in the hotel space -- if not on such a grand scale.
"I think there'll certainly continue to be a consolidation of smaller
hotel businesses," Bollenbach tells
. "It's more that the economies of being in this business really point to being bigger."
Bollenbach says rising overhead costs -- such as the expense of maintaining technology -- can make it worthwhile for smaller companies to sell out to larger, more established brand names.
The CEO points to programs such as Hilton Honors, which offers customers airline travel miles and points for staying at its branded hotels. He says the rewards program has helped to drive Hilton's business and maintain its customer base, but would be prohibitively costly for a smaller player.
"The smaller guys forming larger pools of assets is a logical move," says one New York based M&A banker, who declined to be identified. "Plus, there's a lot more of the smaller guys out there."
Bollenbach doesn't expect to see rivals like
go private, he adds.
"It's very difficult to do," he says, referring to a possible takeover of the big chains, which are valued around $16 billion to $18 billion by the market -- the same neighborhood as Hilton. "It's a lot of money."
For its part, Blackstone has been big on hotels, diving in when the hotel industry was suffering from diminishing business travel and a softening economy. The Sept. 11 terrorist attacks left customers balky, and many observers took on a very negative outlook for the hotel industry.
A skittish travel market meant bad news for hotels, but it had the effect of significantly tamping down an overheated construction market, Bollenbach notes. A slowdown boosted the value of existing hotels and pushed up demand for quality high-end properties and lower-market fare.
"These are good times for the hotel business," Bollenbach comments.
The Hilton CEO declined to talk specifics of the Blackstone deal, which gave Hilton holders a 32% premium to their pre-deal stock price. A proxy describing the terms of the deal, including particulars on which companies Hilton talked with about a possible tie-up, is expected to be filed with the
Securities and Exchange Commission
over the next few days.
He was more forthcoming about his dealings with banker Ken Moelis, the former UBS banking chief who scored a big win at his new self-named new firm by advising Hilton.
Moelis "believes that if he just tells you the truth and tells you what he really thinks about a deal, he might not win that business but you'll come back to him," Bollenbach says. "For me, he's a trusted friend."
The two have known one another since Moelis was a green banker in his mid 20s at Drexel Burnham Lambert and Bollenbach was the CFO of Holiday Corp. -- the operator of the Holiday Inn chain.
Bollenbach, who plans on retiring from his CEO position once the deal is finalized, will reap about $200 million in the buyout, according to published reports by
The Times of London