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.”
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Industry Legend Forte Dies 
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