Lodging Hospitality Magazine

Date: March 10, 2010

Title: Analysis: Why Blackstone’s Troubles Won’t Bruise Hilton’s Brand



Summary: Hilton has long enjoyed a brand name that has been associated with quality, integrity and great services. Since being bought out by private equity firm, Blackstone Group, this brand name has been subject to potential tarnishing due to Blackstone Group's financial troubles. The brand name has also seen a significant threat regarding legal issues that Hilton has dealt with over recent years regarding their complications with Starwood Hotels and Resorts. This article reflects on the effects of these recent happenings on the brand name and how they can potentially become more threatening to Hilton moving forward. For instance, Blackstone may, if some of their other investments prove not to be profitable, sell or break up Hilton.

Reflection: Blackstone Group is one of the largest private equity funds in the world and Hilton is their single biggest investment. Hence, they will use Hilton in whatever way they can to maximize their own profits. This simple fact will have to be taken into consideration by any hotel developer thinking about waving the flag of any Hilton brand as long as Blackstone continues to struggle.

The two drastic moves that Blackstone can make are to sell Hilton altogether or divest certain brands like Hampton Inn or Hilton Garden Inn. The latter, I think, would hurt the brand much more. If the company divests, say, Hampton Inn and Hilton Garden Inn, Hilton would become a less diverse entity. Diversity is paramount in the lodging industry, as we have seen in the recent economic downturn, because it provides the opportunity to survive through tough times, with economy/mid-market and prosper through the good times with brand names like Conrad and Waldorf.

Divesting certain brands is an attractive move to a firm like Blackstone Group because they will be sure to generate cash, which they are in dire need of. However, they must consider the effect that the divestiture of one of these brands will have on the willingness of developers to wave the remaining Hilton brands. It also decreases the amount of properties that Hilton customers can utilize ther HHonors points, which hurts all the brands under the Hilton umbrella.

Hilton’s legal troubles could also have an adverse effect on franchising. If the outcome of the case puts a damper on the Hilton name, Hilton may struggle with franchising new properties or even lose existing properties, which would decrease revenues, which may cause Blackstone to divest a brand.

Right now, there are very few customers that are even aware of Hilton’s dilemmas and few people, who are aware, care. Hence, Hilton is still in a position to prevent anything significant from happening.

Source: Lodging Hospitality Magazine

Hyperlink: http://lhonline.com/distressedinventory/blackstone_troubles_wont_bruise_hilton_0309/index.html