Hilton Is Considering Options, Including Spinoffs and a Possible Sale
The Activist Spotlight
Hilton Worldwide Holdings (HLT)
Business: hospitality
Stock Market Value: $21.3 billion ($71.95/share)
What’s Happening: Pershing Square has acquired a 3.7% position for investment purposes.
Key Numbers:
32%: Pershing Square’s return on a 2016-17 investment in Hilton
$82.04: Hilton’s stock price as recently as Sept. 27
Behind the Scenes: While Pershing Square prefers activist investments and is never completely passive, this situation might show it at its most passive. Pershing believes that Hilton is one of the best businesses in the world—a capital-light, free-cash-flow producing, high-margin operation, with strong brands and managers. Nonetheless, Pershing feels that it can be helpful, and that it has something to add, particularly to a company with a real estate element and a franchising business, two areas in which Pershing historically has excelled.
After two recent spinoffs, Hilton is now a fee-based business that primarily franchises and manages branded hotel properties. Pershing believes that two key investor concerns now weigh on Hilton’s share price: a potential cyclical downturn in lodging and a potential competitive threat from Airbnb.
After conducting an extensive analysis of the industry and Airbnb, Pershing believes it likely that revenue per available room would average positive growth over a three- to five-year period, even if at first it might decline, and that Hilton’s business model is unlikely to face a meaningful threat from Airbnb, as the two tend to compete for different types of customers.
While Pershing didn’t acquire its position with an activist plan, it will certainly engage amicably with Hilton management.