US Hilton in talks to buy UK Hilton's hotels

US group Hilton Hotels Corp. is in talks to buy the hotels of its UK namesake, the companies announced over the weekend, a deal which would reunite the Hilton brand after more than 40 years and could be worth £3.6 billion in cash, an industry source said.

Shares in Britain's Hilton Group jumped as much as 19 per cent as investors hoped the higher-than-expected price for its hotels would lead to a bumper cash handout, while they would still own shares in the group's faster-growing Ladbrokes betting business.

Shares in the world's largest hotelier InterContinental Hotel Plc also rose 4.9 per cent to 722-1/2 pence on the news.

"This is a great deal if it comes to fruition. It confirms our view that the US hotel operators are looking to come to Europe to diversify their income streams and it makes InterContinental vulnerable," analysts at ABN AMRO said.

"This is fantastic news, it is the best thing to happen for Hilton's shareholders," said another analyst.

Analysts had valued the London-based Hilton's 400-plus hotels at around £3.2-3.4 billion, while they added that the cash return could be as high as 225 pence per Hilton share if shareholders were to get all of the £3.6 billion price which a source close to the matter said was being discussed.

Both Hilton groups confirmed talks were taking place but also cautioned that a deal was not yet done.

"The board confirms that it has received an indicative offer from Hilton Hotels Corporation, which it is currently evaluating," Hilton Group said in a statement.

"While discussions are ongoing a definitive agreement has not been signed and there can be no assurance that any transaction will result from such discussions," Hilton Hotels Corporation said in a separate, brief statement.

The Hilton business split in 1964 with the US company running all Hilton hotels in the US and the UK company operating the brand elsewhere. The two share an alliance to cover joint marketing, reservation and loyalty programmes and have for a number of years discussed a merger.

Because of the close links between the two groups analysts say a counter bid is very unlikely, but they expect other US groups like Marriott International to look to Europe.

The US Hilton company has been encouraged to approach the British group by an improving US hotels market and the need for it to expand outside its domestic market, analysts said.

Hilton Hotels owns, manages and franchises more than 2,300 hotels, while the two Hilton companies operate a joint venture to expand the luxury Conrad brand, named after the company's founder, which has about 20 hotels.

Ladbrokes acquired the Hilton business outside the US in 1987,and changed its name to Hilton in 1999 after it acquired the Scottish casino and hotel operator Stakis.

With the hotels sold Ladbrokes would be worth around £3.7 billion and remain in the FTSE-100 Index, analysts said.