Room at the Inn? How Hilton's CFO Accommodated Another Acquisition

What they got on with was capitalizing on opportunities for synergy. Within five months, the Hilton Honors guest-loyalty rewards program was installed in 1,400 additional hotels, and marketers were laboring to enhance cross-selling efforts through E-business applications. Previously, customers calling a hotel that was booked up would be transferred to another operator, who would connect them to a sister hotel. Now the rebooking is done by one operator using one screen.

Savings achieved in the first year were dramatic — $72 million, 30 percent more than had been estimated. Hilton expects to save another $100 million this year. And Hart attributes these gains to the assignment of responsibility to key managers whose compensation is based on specific results. He's done concentrating on the merger in historic terms, though. After this year, "we aren't going to talk in terms of synergies," says Hart. "We'll continue to be focused on cost control, but we are one company now."

He considers the financing history, too. When the Promus deal closed, Hilton had $5.5 billion in long-term debt — 70 percent floating, 30 percent fixed — and "our target was to reverse that mix," says Hart. The issuance in August of $200 million of 30-year senior unsecured notes — the proceeds of which paid down all outstandings on a $1.75 billion revolver — completed that goal.

"Eesenhower and Patton"
To Hart, the success of the deal is reflected in the market-share gains at former Promus hotels. Where it hasn't yet been reflected is in Hilton's stock, which currently trades at around $12, well below its 1999 highs near $17. But some analysts agree with Hart when he says, "that too will come."

Sluggishness in the travel business hinders any improvement, of course. Atlanta-based Hospitality Research Group, for one, predicts the average U.S. hotel will suffer a 5.6 percent decline in operating profit this year. Still, "Hilton is as well positioned as you could hope a lodging company to be," says Bryan Maher, director of U.S. equity research, Credit Lyonnaise.

With the Promus deal closed, Hilton now sits on the M&A sidelines — an unusual spot for Hart and Bollenbach. Their giant deals together at Hilton include the $3.1 billion acquisition of Bally Entertainment Corp. and the spin-off of its casino operations into Park Place Entertainment Corp., as well as an unsuccessful bid for ITT Corp. Hart — who says Bollenbach is "Eisenhower and I'm George Patton" in their deal-making roles — explains they just "don't see any bargains out there. And the main thing is that we hate to overpay."

For future hotel purchases, though, Promus would make a great model. Nothing in that deal, Hart says, "could have been scripted any better."

Lori Calabro is a deputy editor at CFO.

Full Occupancy

Hilton has seen market-share increases this year at newly acquired hotels.

*The RevPar (revenue per available room) Index of 100 represents a brand's "fair share" of the market.

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