• Hilton to explore Ladbrokes' IPO if hotel sale fails

By Matthew Garrahan in London November 21, 2005 - Hilton Group is to explore an IPO of Ladbrokes, its betting brand, in the event that the £3.6bn ($6.63) sale of its hotels division to Hilton Hotels Corporation of the US does not come to fruition. Talks between Hilton and its US partner are continuing, with both sides hopeful of securing a deal in the next two months. Spinning off Ladbrokes has not been discussed at board level, although some of the group's directors are thought to favour pressing ahead with separation if the hotel sale does not happen. Hilton declined to comment. However, David Michels, Hilton's chief executive, last week described the chances of the HHC deal going ahead as "50-50". Separation of Hilton's hotels and betting businesses, either via the HHC deal or a Ladbrokes' spin-off, would allow the bookmaker to expand internationally and enter the lucrative US betting market where online poker and sports betting is booming. With Ladbrokes facing stiff competition in its home UK market the group is keen to expand into new territories. It has held back from taking internet bets in the US because of Steve Bollenbach's presence on the Hilton board. Mr Bollenbach, an American and the co-chairman and chief executive of HHC, would risk being the target of legal action if Ladbrokes was to enter the US, because the legality of online betting there is unclear. However, other betting companies with online operations – notably Gibraltar-based PartyGaming – have generated huge profits from the US. The sale of Hilton's hotel business to HHC remains the favoured option for the Hilton board. The deal would leave Hilton shareholders with £3.6bn of cash from the deal and a quoted betting business which would be one of the largest in the FTSE 100. HHC is believed to be funding the deal out of debt and is understood to have retained Bank of America to syndicate the loan. HHC has a market capitalisation of almost $8bn. However, by borrowing £3.6bn it would probably lose its investment grade status. The group would be expected to regain this status after it had sold some of the Hilton hotel assets. Mr Bollenbach, a renowned dealmaker, used this tactic successfully when hemasterminded the $3.7bn takeover of Promus Hotel Corporation in 1999 in a deal that doubled the size of HHC. He could expect to generate significant returns from the sale of Hilton's international hotels. The property market is booming, with hotel assets commanding substantial prices and attracting a new breed of investors, including institutional investors, as well as trophy asset hunters. Hilton is close to sealing a £400m hotel sale to Royal Bank of Scotland, with the bank set to buy 16 of the group's UK hotels. The group is likely to continue selling property and will look to sell similarly sized chunks of hotels upon completion of the RBS deal. This process is likely to be continued by HHC if it succeeds in buying Hilton's hotel business. HHC also declined to comment. Copyright The Financial Times Ltd. All rights reserved.

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