Updated from 11:24 a.m. EDT

Hilton Hotels ( HLT) and the international business it spun off four decades ago could be headed for a warm reunion.

But Hilton Hotels' investors -- cognizant of a potential deal's near-term impact on earnings and Hilton's balance sheet -- are giving the news a decidedly cold reception, and shares slumped as much as 6% in New York Friday.

Hilton Hotels of Beverly Hills, Calif., is talking to London-based Hilton Group PLC about buying the latter's hotel unit, which owns and manages the Hilton brand outside the U.S., the companies confirmed.

Investors in the U.S. company have plenty to be concerned about. Media reports citing anonymous sources put the price tag at about 3.6 billion pounds, or $6.3 billion. Given that Hilton Hotels cash hoard recently totaled $691 million, it probably would have to take on significant debt to finance such a purchase.

That would mark a change from recent years, when the company cleaned up its balance sheet by selling nonstrategic hotels and paying down debt. The potential for more debt is likely the reason Standard & Poor's put Hilton Hotels' credit rating on negative watch Friday.

Riding the strong lodging recovery, Hilton Hotels has also been returning extra cash to investors by aggressively repurchasing its own stock. In the second quarter, for instance, it snapped up 5.1 million shares.

"Given our sense that many investors were in the stock 'for the excess free cash flow going to share repurchase' theme, we think we could see some rotation out of Hilton Hotels," wrote Bear Stearns analyst Joseph Greff, in a research note Friday. "We think Hilton Hotels needs to address why it thinks now is the right time to make an acquisition -- is it because it sees its domestic growth slowing in the near term?"

For now, neither Hilton company is saying much, other than confirming that talks continue and sounding perfunctory cautions about a deal not being certain. Hilton Hotels says it won't comment again until it either reaches an agreement or discussions fall apart.

The potential purchase could hurt next year's earnings, if it were financed through a blend of stock and cash, according to J.P. Morgan analyst Harry Curtis. At best, the effect on EPS would be neutral, if the company sold a mix of fixed- and floating-rate debt and realized about $50 million of merger-related benefits, he adds.

One question Curtis poses is whether a global Hilton Hotels would seek to sell nonstrategic overseas hotels, mimicking its recent strategy of shedding some U.S. real estate to focus instead on management and franchise fees. If it were to do so, it might be able to continue its share repurchases.

Despite the potential short-term impact, analysts say the purchase would make good strategic sense in the long run. "They'll regain worldwide control of the brand," says Morningstar equity analyst Julian Perlmutter. "It's always good for a franchise business to have full control of the brand and bring it all under one roof."

That would make Hilton Hotels more like rivals Starwood Hotels & Resorts ( HOT) and Marriott International ( MAR), which manage their brands around the world.

Bear Stearns' Greff notes Hilton Hotels would immediately boost its presence in Europe, which could see much stronger lodging revenue growth in the future than other markets, which are at more mature points in their recoveries.

Hilton Hotels owns, manages and franchises hotels under the Hilton, Conrad, Doubletree, Embassy Suites Hotels and Hampton Inn brands. It spun off Hilton International in 1964, but the two companies have had a marketing alliance since 1997. In addition to the international hotel unit, the London company owns the Ladbrokes gambling business.

Hilton Hotels plans to report its third-quarter results Oct. 27.