Blackstone sitting on $8.5B paper profit on Hilton deal

The initial public offering (IPO) of Hilton Worldwide Holdings Inc. will set the stage for one of the biggest exits in the  private equity industry and windfall for its owner The Blackstone Group. The alternative asset management major, which will hold 76 per cent in Hilton post issue, will be sitting on a paper profit of $8.5 billion.

This would be the second-largest profit after $10.1 billion gains that Apollo Global Management made from its 2008 investment in chemicals producer LyondellBasell Industries, according to Bloomberg. It may be noted that India's Reliance Industries had made a failed bid worth $14.5 billion for LyondellBasell in 2010 after which Apollo doubled down on its bet.

Hilton, the world's biggest hotel operator, raised $2.35 billion in the largest IPO for a hotel company. Hilton was acquired in an all-cash buyout by Blackstone Group in a $26 billion (including debt) deal in 2007. The deal was done through Blackstone's real estate and corporate private equity funds.

Blackstone's stake in Hilton is currently valued at $15 billion, more than double of $6.5 billion invested by the firm and its co-investors. If Hilton's shares, priced at $20 in the IPO, rise by $2 then it would make it the biggest profit.

Bloomberg adds that the profit on Hilton overtakes $7 billion made by KKR & Co from the 1986 buyout of supermarket chain Safeway Inc and $7 billion made by Ripplewood Holdings & J Christopher Flowers from the $1.1 billion takeover of Tokyo-based Shinsei Bank Ltd in 2000.

The Hilton deal is also a turn-around for Blackstone (as are Shinsei and LyondellBasell), which had marked down the value of its Hilton investment by 70 per cent in 2009. "It also bought back some of the company’s debt and restructured loans in April 2010 to cut Hilton’s debt by $4 billion and extend maturities by two years, in exchange for contributing more equity," said the report.

(Edited by Joby Puthuparampil Johnson)

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