Hilton Hotels Corporation Agrees to Acquire Lodging Business of Hilton Group plc; Transaction to Make Hilton Hotels Corp. a Global Company for the First Time in 40 Years

Business Wire, Dec 29, 2005

BEVERLY HILLS, Calif. -- Hilton Hotels Corporation (NYSE:HLT) ("HHC") today announced an agreement whereby HHC will acquire the lodging assets of Hilton Group plc (known collectively as "Hilton International" or "HI") for approximately GBP 3.30 billion (or $5.71 billion) in an all-cash transaction. This equates to a purchase price multiple of 11.3 times pro forma 2006 Adjusted EBITDA. The purchase price assumes a USD/GBP exchange rate of $1.73:GBP 1; the USD amount may change depending on the exchange rate at closing.

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.

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

Upon completion of the transaction, Hilton Hotels Corporation will be the largest and most geographically diverse lodging company in the world, with nearly 2,800 hotels and 475,000 rooms in 80 countries, operating under the industry's most respected brand names, including 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.

On a pro forma full year basis (assuming the transaction closed December 31, 2005,) the combined entity is expected to have 2006 Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of approximately $1.7 billion, and be accretive to HHC's expected stand-alone 2006 earnings.

"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 - the most powerful brand in the industry - 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.