China’s HNA Group to buy 25pc of Hilton

China’s HNA Group will buy a 25pc stake in Hilton, the latest move into US real estate by a Chinese firm.

A Hilton hotel in the US. Picture: AP Photo/Steve Helber.

Chinese conglomerate HNA Group said Monday it plans to buy a roughly 25 per cent stake in Hilton Worldwide Holdings from Blackstone Group LP for $US6.5 billion, the latest move into American real-estate assets by a Chinese firm.

Under the terms of the deal, which will reduce Blackstone’s interest in Hilton to approximately 21 per cent, HNA will pay $US26.25 a share in cash for the stake, a 15 per cent premium to Hilton’s closing price of $US22.91 on Friday.

Hilton shares rose edged up 1.3 per cent to $US23.23 in morning trading.

The move comes as Hilton is expected to later this year split into three distinct entities, the result of a plan to spin off a chunk of its hotels into a real-estate investment trust and to separate its timeshare business. The HNA-Blackstone transaction is expected to close in the first quarter of 2017, and HNA will own approximately 25 per cent of all three companies.

The agreement allows HNA to appoint two directors, one HNA member and one independent member, to Hilton’s Board of Directors, bringing the total to 10 members. Blackstone will keep two seats on Hilton’s board, including Chairman Jon Gray.

HNA Group entered into advanced talks with Blackstone about the stake sale around June this year, but initial conversations started earlier than that, according to people familiar with the matter. There was no auction process of the stake. HNA has agreed to hold its Hilton stake for two years, and will need board approval to purchase shares further, the people said.

HNA and Hilton both want to tap China’s fast growing outbound tourism market — some 120 million Chinese tourists travelled abroad in 2015, according to data from China Tourism Academy.

It will be a long-term investment for HNA, now Hilton’s largest shareholder after Blackstone reduced its stake. The private-equity firm bought Hilton in 2007 for about $US25 billion in debt and equity and has since tripled its initial investment, according to one person familiar with the situation.

Chinese firms — especially insurers — have shown greater appetite for US real-estate assets lately. Private investment firm Starwood Capital Group said last week it sold a stake in a roughly $US2 billion portfolio of US hotels to a group led by China’s largest insurance company, China Life Insurance. Last year, Starwood reached a deal to sell the Baccarat Hotel in Manhattan to China’s Sunshine Insurance Group. And Anbang Insurance Group paid nearly $US2 billion for the Waldorf Astoria hotel in Manhattan before it engaged in a high-profile bidding war with Marriott International for Starwood Hotels & Resorts Worldwide, though Anbang ultimately walked away.

Anbang has earlier cut deals with Blackstone in the hospitality sector. It has completed a $US5.5 billion transaction to acquire Strategic Hotels from Blackstone, according to people familiar with the situation. The deal was worth $US6.5 billion but the sale of one of the hotels, California’s Hotel del Coronado, was blocked due to its vicinity to a military base, one of the people said. That hotel was worth about $US1 billion, according to the people.

HNA has been one of China’s most active outbound acquirers this year, according to Dealogic. It earlier bought 100 per cent stake in US-based Carlson Hotels in April and is also in the process of completing the $US6 billion acquisition of Ingram Micro and an around $US4 billion purchase of CIT’s leasing arm.

Blackstone said earlier this month it would sell one of its largest assets — information-technology outsourcing firm Pactera Technology International — to a unit of HNA Group for about $US675 million in cash.

JP Morgan advised HNA on the stake purchase. US independent investment bank Evercore advised the Hilton board.

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