U.S. Hilton Group to buy British-based Hilton Hotels

U.S. group Hilton Hotels Corp is in talks to buy the hotels of its UK namesake, the companies announced on Friday, a deal which would reunite the Hilton brand after more than 40 years and could be worth 3.6 billion pounds in cash, an industry source said.

Shares in Britain's Hilton Group jumped as much as 19 percent on Friday as investors hoped the higher than expected price for its hotels would led to a bumper cash handout, while they would still own shares in the group's faster-growing Ladbrokes betting business.

Shares in the world's largest hotelier InterContinental Hotel Plc also rose 7.7 percent to 742 pence by 0700 EDT as attention focused on U.S. hoteliers looking to buy in Europe.

"This is a great deal if it comes to fruition. It confirms our view that the U.S. hotel operators are looking to come to Europe to diversify their income streams and it makes InterContinental vulnerable," said analysts at ABN AMRO.

"Hilton Hotels Corp needs to reunify the brand for long term revenue growth synergy - it's not a deal about cost synergy. HHC is landlocked in the U.S. A deal would make sense," they added.

Hilton shares in London were up 11.8 percent at 340-1/2p as analysts said the deal would unlock value and the renamed Ladbrokes business would be re-rated compared with its rival betting shop operator William Hill Plc.

Analyst Lou Pirenc at Morgan Stanley described the move as a "Marriage made in Heaven," and said that a stand-alone Ladbrokes would deserve to trade at a premium to William Hill.

Analysts had valued the London-based Hilton's 400-plus hotels at around 3.2-3.4 billion pounds, while they added that the cash return could be as high as 225 pence per Hilton share if shareholders were to get all of the 3.6 billion-pound ($6.3 billion) price which a source close to the matter said was being discussed.

Both Hilton groups confirmed talks were taking place but also cautioned that a deal was not yet done, according to Reuters.

"The board confirms that it has received an indicative offer from Hilton Hotels Corporation, which it is currently evaluating," Hilton Group said in a statement.

"While discussions are ongoing a definitive agreement has not been signed and there can be no assurance that any transaction will result from such discussions," Hilton Hotels Corporation said in a separate, brief statement.

The industry source said a deal was expected to be thrashed out before the end of the year, with the emphasis on boosting revenue for the U.S. Hilton, as there would be little cost savings apart from closing one head office.

The Hilton business split in 1964 with the U.S. company running all Hilton hotels in the United States and the UK company operating the brand elsewhere. The two share an alliance to cover joint marketing, reservation and loyalty programs and have for a number of years discussed a merger.

T.E.