Hilton Hotels Corporation is exchanging contracts to sell its Scandic Hotel chain to EQT for approximately €833 million (US$1.1 billion). Net proceeds after transaction costs and taxes are expected to be approximately $1.04 billion.

Based on trailing 12-month recurring earnings from Scandic (net of corporate overhead expenses) before interest, taxes, depreciation and amortisation (EBITDA), the sale price represents an EBITDA multiple of approximately 10 times.  After adjusting for normal replacement for furniture, fixtures and equipment, the implied capitalisation rate on the sale is expected to be approximately 6.5%. The transaction is subject to a number of conditions, but is expected to be completed in April 2007, subject to clearance from the European Union regulators.  Hilton intends to use the proceeds of the sale to pay down debt. 

The proposed sale follows the announcement by Hilton in August 2006 that the company would explore strategic alternatives for the Scandic Hotel chain, with a view to selling all or part of the business.

Scandic is the largest hotel operator in the Nordic region, operating full service hotels in the mid-market segment.  The transaction involves the sale of 132 hotels, of which 128 are Scandic hotels and 3 are Hilton hotels plus one other hotel.  Of the 132 hotels, 3 are owned, 121 are leased, 5 are managed, and 3 are franchised.

Upon completion of the transaction, Hilton will continue to have a presence in Nordic with six Hilton hotels - three in Finland (including the Hilton Helsinki Vantaa Airport due to open in August 2007), two in Sweden and one in Denmark at Copenhagen airport. 

p>Robert M. La Forgia, executive vice president and chief financial officer of Hilton Hotels Corporation, commented on the sale:

“This proposed sale represents the latest execution of our strategy to generate a higher proportion of income from management and franchise fees, while also reducing debt.  This particular transaction will also enable us to reduce our income from leased hotels which, combined with a stronger balance sheet, would significantly strengthen our credit profile.”

Ian Carter, executive vice president and chief executive of Hilton’s International Operations, added:

“Scandic is a prominent and respected brand with an exceptional market position in the Nordic countries. The business has performed very strongly over the last year, which is testimony to the commitment and efforts of the management and employees during the sale process.

Following the re-unification of the Hilton business earlier last year, a key focus of our strategy is international development.  This is underpinned by an excellent portfolio of existing brands, including a number of strong mid-market brands with significant international appeal and potential for growth.”

Hilton will enter into a short-term ‘Transitional Services Agreement’ with EQT to include key service and operational areas, including the Hilton Reservations and Customer Care (HRCC), HHonors guest loyalty programme and IT system and support.

Hilton was advised by Citigroup Global Markets Limited and Mannheimer Swartling.
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