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World Watch: Hilton Sells Scandic; Forte Dies

It is the largest hotel operator in the Nordic region, but Hilton Hotels Corp. nevertheless deemed its mid-market Scandic Hotel chain expendable.

By Staff -- HOTELS Magazine, 4/1/2007

EUROPE: Hilton Sells Scandic To Equity Group EQT


STOCKHOLM It is the largest hotel operator in the Nordic region, but Hilton Hotels Corp. nevertheless deemed its mid-market Scandic Hotel chain expendable. Hilton sold all 128 Scandic properties and four other hotels to Swedenbased private equity group EQT in March for approximately €833 million (US$1.1 billion). The sale will net Hilton US$1.04 billion, which it will use to pay down debt.


Industry analysts lauded the transaction, as Hilton is in the process of dumping peripheral assets acquired in the Hilton International purchase. In a client note, analyst David Katz of CIBC World Markets writes that the Scandic sale “puts Hilton ever closer to its goal of being an investment-grade company.” Smedes Rose of Calyon Securities says the deal, coupled with other sales Hilton is poised to execute, will allow the company to resume stock repurchase.


“Scandic is probably not a brand [Hilton] would consider a core piece of the company, and they were able to sell it at a price higher than most analysts were anticipating,” Rose says. “Hilton is in the process of trying to identify and sell non-strategic assets to eliminate some of the debt they acquired when they got Hilton International, and this is a huge step toward doing that.”


The sale continues the industry-wide trend away from brand ownership of hotel properties. Hilton Chief Financial Offi cer Robert La Forgia says the transaction is part of the company’s plan to generate a greater percentage of income from management contracts and franchise fees. Selling Scandic means the share of Hilton’s management income increases from 36% to 40%. It also improves Hilton’s balance sheet, which strengthens its credit profi le, La Forgia says. Of the properties involved in the sale, 121 are leased, three are owned, fi ve are managed and three are franchised.


Following the transaction, which was to close in April, Hilton will have six branded properties remaining in the region. Despite signifi cantly lightening its Nordic portfolio, La Forgia says Hilton has no intentions of abandoning the market. “We’ll continue to have a presence in the Nordic region. We’re not locked out of that market, and when we see options up in the Nordic for our other brands, we’ll defi nitely explore that.”


A desire to grow Hilton’s other brands was also a motivating factor to unload Scandic. While not among the priority development regions in Europe, Hilton believes its American-based brands, particularly Garden Inn, would thrive in the Nordic, while it’s dubious about Scandic’s ability to catch on elsewhere. “We feel very good about our brands we’ve developed here in the U.S.,” La Forgia says. “Scandic was a great brand in the Nordic region, but whether it has development potential outside the Nordic region, I don’t know.”

Europe
Industry Legend Forte Dies


LONDON Perhaps the United Kingdom’s foremost hotelier, Lord Charles Forte, died in his sleep at his London home on February 28. He was 98.


The Italian-born Forte got his start running a London milk bar in 1934 before getting into the catering business, winning the first catering contract at the new Heathrow Airport. In 1959, his Forte Holdings Ltd. set up Britain’s first chains of fullservice roadside restaurants known as Little Chef and Happy Eater. But that year was an important one in his life for another reason—it marked his company’s first hotel acquisition, London’s Waldorf Hotel. Hotels would prove to be Lord Forte’s calling, and his worldwide empire would at one point boast 940 properties and 95,000 guestrooms.


Colleagues and competitors alike were saddened upon learning of Forte’s death. Former Hilton Hotels CEO David Michels remembered Forte as a great innovator. “He invented TraveLodge, group hotelkeeping and was not far short of a genius,” Michels says. “He always had time to stop and be pleasant.”


Phlippe Rossiter, CEO of the Hotel & Catering International Management Association, which counted Forte as an honorary life member, says Forte was “an inspiration to many people in the industry.” And Willie Bauer, former general manager of the Savoy, called Forte “the greatest hotelier Britain has ever had.”


Following the acquisition of the Waldorf in 1959, Forte’s next purchases were a trio of 5-star Paris properties: George V, Plaza Athénée and Hotel de la Tremoille. By 1970, his company controlled 43 hotels totaling 12,500 beds, making it an attractive merger partner for Britain’s venerable Trust Houses Ltd. The combined concern was named Trusthouse Forte, or THF, and Forte eventually emerged as chairman.


Under Forte’s leadership, THF acquired a controlling stake in the U.S.-based economy franchise chain TraveLodge, introducing it to the U.K. market in 1985. Forte spent much of the decade attempting a takeover of the Savoy hotel group, and despite amassing more than two-thirds of Savoy’s shares, his voting capital never exceeded 42%, and his bids were rebuked. Forte retired as head of THF in 1992, naming his son, Rocco, as successor. The |company was a hostile takeover target by media giant Granada Group three years later; Granada’s successful tender offer topped £3.8 billion. By all accounts, the takeover was a bitter one, and in 2003, as a gesture of good faith, Granada relinquished the rights to the Forte hotel name. Today, the Rocco Forte Hotels group, under the direction of Forte’s 63-year-old son, owns 10 European luxury properties, with three more in the pipeline. Lord Forte was knighted in 1970 and attained life peerage in 1981, but his was an unusual road to English nobility. As a native of Italy, Forte was interned during World War II for three months at the Isle of Man, before being released at the behest of officials within the Ministry of Food.

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