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"Hilton Hotels Corporation is the world's leading lodging and casino gaming company. Among our 240 hotels are some of the most well-known properties to be found anywhere, including the Waldorf-Astoria, Hilton Hawaiian Village and Palmer House Hilton. Our hotels offer guests and customers the finest accommodations and amenities for business or leisure. As the world's largest gaming company, our 17 hotel casinos and riverboat casinos provide the excitement of gaming entertainment in such major destinations as Las Vegas, Atlantic City and Australia. For more than 75 years, the Hilton brand name has been synonymous with excellence in the hospitality industry."
Known as "the granddaddy of the hospitality industry," Hilton Hotels Corporation is best known for its 240 hotels and almost 100,000 rooms. Its 1996 acquisition of Bally Entertainment Corp., however, made gambling the company's largest business interest, with that segment's 17 casinos contributing about 60 percent of revenues.
Though publicly traded, the chain was for most of its history led by members of the Hilton family from 1919, when founder Conrad Hilton bought his first hotel. By the late 1940s, Hilton owned a worldwide chain of premium hotels. In the 1960s, Hilton sold its international operations and concentrated on management contracts and franchising. The company created innovative joint-venture arrangements that became standard industry practice. It then entered what would become a prime source of revenue for the company: casino-hotels. Hilton expanded into gaming in 1971; by 1989, gaming provided 44 percent of the company's income. In 1996, Barron Hilton relinquished day-to-day management of the chain to Stephen F. Bollenbach. Asserting that "Big companies do big things," Bollenbach revitalized the company with bold actions. His merger with Bally made Hilton the world's largest gaming company, and a 1997 bid to acquire ITT Corp. proposed to form the biggest hotel chain in the world.
Early 20th-Century Origins
Conrad Nicholson Hilton was born in San Antonio, New Mexico, the second of eight children. Before he was 18, Conrad had worked as a trader, a clerk, a bellboy, and a pianist. By age 25 he had also worked in politics and banking. In 1919, following the death of his father, Hilton left the army and went to Texas. He had intended to take advantage of the oil boom by buying a small bank. Instead, he found bank prices prohibitive and hotels so overbooked he could not find a place to sleep. When one owner in Cisco, Texas, complained he would like to sell his property in order to take advantage of the oil boom, Hilton struck a deal. Hilton pulled together an investment group and the funds were transferred within a week. The Mobley, in Cisco, became Hilton's first hotel.
The hotel was booked solid, and Conrad and his partner, L. M. Drown, rented their own beds and slept on chairs in the office. They also converted much of the hotel's public space into additional guest quarters. Making use of wasted space became a hallmark of the Hilton chain. With the Mobley running smoothly, Hilton bought two more Texas properties in 1920; the Melba, in Fort Worth, and the Waldorf in Dallas--named after the prized New York hotel. In 1925 Conrad Hilton built the first hotel to carry his name, in Dallas.
With expansions well underway, Hilton consolidated his properties into Hilton Hotels, Incorporated, in 1929, when the stock market crashed. The El Paso Hilton was completed in November 1930 and opened with a fanfare. A year later, Hilton owned eight hotels and was more than half a million dollars in debt when a young bellboy slipped him $300--his life savings--so Hilton could feed himself and his family.
Depression-Era Wrangling over Corporate Ownership
In 1931 the Moody family of Galveston, Texas, from whom Hilton had borrowed, took possession of his hotels when he defaulted on a $300,000 loan. The Moodys then hired Hilton to manage their own and his hotels, now known as the National Hotel Company. Nine months later, in 1932, Hilton and the Moodys decided to part. The separation, however, was in no way peaceful. The Moody family and Hilton sued and countersued each other regarding the terms of their agreement for separation, which Hilton claimed allotted him one-third of the hotels and one-third of the stock if the arrangement failed to prove satisfactory. In 1933, while Hilton continued to battle the Moodys in court, the Moodys defaulted on the loan for the El Paso Hilton, and Conrad Hilton managed to raise the necessary $30,000 to buy back that hotel. In 1934 Hilton settled with the Moodys, who lent him $95,000 and returned the Lubbock, Dallas, and Plainview hotels. According to Conrad Hilton, while Depression-era hotel owners saved less than one hotel out of five, Hilton emerged with five of his eight hotels, and he met his debts by the summer of 1937.
In 1938, Hilton bought his first hotel outside of Texas, the Sir Francis Drake in San Francisco. He sold it two years later at a $500,000 profit to raise capital to purchase the Stevens in Chicago, then the largest hotel in the world.
Although U.S. entry into World War II spawned caution, Hilton acquired three new properties, one in Los Angeles and two in New York. Thus, in 1942, his name stretched from coast to coast. The New York properties included the Roosevelt and the Plaza. Hilton claimed he was practicing for New York's Waldorf-Astoria, a picture of which he had clipped from a magazine and carried with him since the hotel opened in 1931.
Postwar Expansion
In 1945, Hilton traveled to Chicago to complete the purchase of the Stevens, which he had initiated in 1940, and ended up acquiring the Palmer House as well. In May 1946, Hilton Hotels Corporation was formed. It made history the next year as the first hotel company to have its stock listed on the New York Stock Exchange. Conrad N. Hilton was president and the largest stockholder.
Despite its reputation, the Waldorf-Astoria was not a profitable hotel. While negotiations to lease that hotel were taking place, Hilton worried his board members with his interest in international hotels in a postwar climate uncertain for international business. Nevertheless, Conrad Hilton pursued the venture that would become the Caribe Hilton in San Juan, Puerto Rico. An agreement was made to form a wholly owned subsidiary--Hilton Hotels International--for which Hilton formed a separate board. In 1949 Conrad Hilton bought the lease on the Waldorf-Astoria. The Waldorf made a $1 million profit in its first year under Hilton management. The first European Hilton was opened in Madrid in 1953.
The largest hotel merger in the industry took place in 1954 when Hilton Hotels purchased the Statler Hotel Company for $111 million. The Statler chain consisted of eight hotels, with two more under construction. Statler was noted for its fine properties and solid reputation. The chain was about to be sold to a New York realty firm when Hilton made a plea to Statler's widow. She agreed to sell to Hilton, in order to keep the hotels in "the hands of hotel people." Earnings per share nearly doubled between 1953 and 1955, largely as a result of this acquisition. In 1955, another overseas Hilton was opened, in Turkey, and the Continental Hilton of Mexico City opened the following year. In 1964 Hilton International was spun off and became a public company with Conrad Hilton as its president. Hilton was made chairman of the board of Hilton Hotels that same year.
Second Generation of Management Guides Development of Casino-Hotels
The late 1960s saw significant changes, beginning with the 1965 formation of Statler Hilton Inns, a corporate franchising subsidiary, and a change of presidents. In 1966 Hilton's son, William Barron Hilton--known as Barron&mdashsumed the presidency. Barron Hilton's conservative fiscal strategies set a decidedly different course for the company his father had built. The following year, Barron Hilton persuaded his father, as the largest shareholder of Hilton International, to swap his stake in the overseas operation for shares of Trans World Airlines (TWA). Hilton remained chairman of Hilton International. The expectation had been that TWA stock would rise, but its value halved over the next 18 months. Meanwhile, foreign travel boomed, and Hilton lost the rights to his name overseas.
In 1970, Barron Hilton engineered the $112 million purchase that would generate the largest percentage of the company's revenues within a decade: two casino-hotels in Las Vegas, Nevada. While Conrad Hilton had dabbled in gaming via a Puerto Rican casino in the late 1940s, the acquisition of the Las Vegas Hilton and the Flamingo Hilton marked the launch of a consistent strategy. This move paid for itself, particularly during the late 1970s and early 1980s, when the occupancy rate at both hotels remained steady in contrast to industrywide trends.
Barron Hilton then concentrated on franchising the Hilton name and managing other hotels. In 1973, the company launched a computerized hotel reservation dubbed "HILTRON." The system served not only the Hilton chain but was also employed by other chains in the industry, providing yet another source of revenue. In 1975 Hilton sold a 50 percent interest in six major hotels to Prudential Life Insurance Company of America for $85 million. Hilton continued to manage the properties in exchange for a percentage of room revenues and gross profits. This was one of the first management leaseback deals in the industry. Joint-venture arrangements later became standard industry practice.
In 1977 the purchase of the Waldorf-Astoria's building and land was finalized for $35 million. The decade closed with the death of Conrad N. Hilton in 1979, at age 91. Barron Hilton became chairman of the board. During the 1980s Hilton continued to make its money primarily though casino gambling, leasing and management, and franchise fees. These were sound measures during recession years: while revenues for owned hotels increased an average of four percent in 1980 and 1981, management contract fees increased by six percent in 1980 and 14 percent in 1981. Overall earnings for Hilton increased by six percent during these years, and the company grew rich in liquid assets. It put this capital to use in hotel improvements and in 1981, the $34.4 million purchase of another casino-hotel in Nevada, the Sahara Reno. Barron Hilton maintained a no-partnership policy for the company's casino-hotels. Although the hotels suffered from the loss of convention bookings during the recession, an addition to the Las Vegas Hilton in 1982 made it the largest hotel in the world, and further convention facilities were added in 1985.
Having sold the international rights to the Hilton name, the corporation resumed international growth in 1982 under a new subsidiary, Conrad International Hotels. Construction began on a casino-hotel in Australia the following year. Over the course of the next decade, this division established hotels (many of them joint ventures) in Turkey, Egypt, Hong Kong, Uruguay and New Zealand.
By 1985 gaming was providing 40 percent of the company's operating income, and earnings had increased 20 percent annually since Hilton's entry into that industry. In 1985, however, after spending $320 million to build a casino in Atlantic City, New Jersey, Hilton was denied a license to operate. The New Jersey Casino Control Commission's primary objection was Hilton Hotel's longstanding relationship with Chicago labor attorney Sidney Korshak, who had been linked with organized crime figures and who the New York Times in 1976 had labeled "a behind-the-scenes fixer." Hilton severed its ties with Korshak, who had acted as a labor consultant for the company, and the gaming commission granted a new hearing. In April 1985, before the rehearing took place, however, the hotel-casino was sold to Donald Trump at cost.
While Hilton focused on the casino-hotels, Marriott and Hyatt were expanding in the luxury-hotels market. To keep pace with its competitors, Hilton pledged $1.4 billion to renovate older properties during the late 1980s. Barron Hilton also concentrated on solving the problem of his father's will.
Dispute over Founder's Will Spans 1980s
When Conrad Hilton died, he had bequeathed the bulk of his holding--a 27 percent block of Hilton shares&mdashø the Conrad N. Hilton Foundation. This foundation, incorporated in 1950, gives aid to Roman Catholic nuns. This provision left Barron Hilton with 3.6 percent of Hilton Hotels, but he claimed to have exercised an option on the foundation's shares immediately, buying their portion at the market rate of $24. Ownership of the stock was contested for the next decade. At issue was the interpretation of an option Conrad Hilton had allotted Barron Hilton in his will: Barron Hilton claimed the will allowed him to buy the entire stock from the foundation at the 1979 price. The estate's executor, who was Conrad's personal attorney, claimed the will intended that Barron Hilton be entitled to no more than seven percent of the shares. Meanwhile, Hilton and ex-wife Zsa Zsa Gabor's daughter also contested the will. The attorney general's office of California joined the case, arguing that the foundation was entitled to the shares at market value, or $225 million, in 1985. To complicate the issue further, Golden Nugget casino's chairman Steve Wynn attempted to buy the disputed shares in 1985 at their current market price--$72 a share--in order to launch a takeover of Hilton.
A November 1988 settlement gave Barron Hilton four million of the disputed shares, a stake valued at $204 million. The foundation kept 3.5 million shares, worth $178 million at the time, and six million shares, a $306 million stake, went into a trust with Barron Hilton serving as executor. Perhaps most significant, the agreement gave the CEO the trust's voting privileges, for a total voting presence of 25 percent. In addition, Hilton was to receive 60 percent of the trust's share dividends until 2008, after which they would revert to the foundation.
The chain closed the decade enjoying a 70 percent occupancy rate in its newly rejuvenated domestic hotels, greater international expansion, and properties totaling an estimated $4 billion to $6 billion. In May 1989, Chairman Barron Hilton solicited bids for the chain. By December 1989, however, the company had not received a satisfactory bid, and Hilton decided not to sell.
The 1990s and Beyond
After three decades of leadership, Barron Hilton relinquished the chief executive office of the corporation in 1996. While his final years at the helm were criticized as indecisive and overly conservative, the fact remained that its revenues increased from less than $1 billion in 1989 to $1.6 billion in 1995. Net income increased at an average annual rate of 19.6 percent, from $84.3 million in 1991 to $172.8 million in 1995.
In 1996 53-year-old Stephen F. Bollenbach became the first non-Hilton to guide the company. He came to the job with incontrovertible credentials, having engineered both a debt restructuring for the Trump empire and Walt Disney's $19 billion acquisition of Capital Cities/ABC. A spate of high-profile deals quickly ensued. Within five months, the new CEO had merged Hilton with Bally Entertainment Corp. via a stock swap valued at $2 billion. In one move, the deal created the world's largest gaming concern and made casino gambling Hilton's largest business. However, in the interest of equilibrium, Bollenbach also executed several key moves to expand the hotel chain. First, he repurchased the Prudential Insurance Company's stake in six Hiltons for $433 million. He also pledged to increase via franchising Hilton's budget Garden Inns chain by 50,000 rooms over the remaining years of the decade.
Before 1996 had ended, Bollenbach had also pulled off a reunification of the global Hilton presence. By the mid-1990s, ownership of Hilton International (and the overseas rights to the Hilton name) had passed to London's Ladbroke Group plc. Hilton purchased a three percent stake in Ladbroke and in return the British concern agreed to invest in future Hilton enterprises. The two companies planned to create cooperative marketing programs (including honoring each other's frequent stay plans) and develop new hotels together.
On January 27, 1997, Hilton bid $55 per share for New York-based ITT Corp., aiming primarily to acquire its ITT Sheraton subsidiary's 415 hotels and 14 casinos. If completed, the merger would create the world's biggest hostelry.
Principal Subsidiaries:Destination Resorts, Inc.; Hapeville Investors, Inc.; Hilton Employee Relief Fund; Hilton Equipment Corp.; Hilton Gaming Corp.; Hilton Hawaii Corp.; Hilton Hotels Partners I, Inc.; Hilton Hotels Partners II, Inc.; Hilton Hotels U.S.A., Inc.; Hilton Inns, Inc.; Hilton Insurance Corp.; Hilton Pennsylvania Hotel Corp.; Hilton Recreation, Inc.; Hilton Resorts Corp.; Hilton San Diego Corp.; Hilton Suites, Inc.; Hilton Systems, Inc.; Hilton Washington Corp.; Kenner Investors, Inc.; Beverly Hilton Corp.; Hotel Waldorf-Astoria Corp.; New Yorker Hotel Corp.; Palmer House Hilton Hotel Co.; Attiki Casinos, Hsa (Greece) (50%); Compass Computer Services, Inc. (50%); Earlsfort Centre Hotel Proprietors Ltd. (Ireland) (14.7%); Greenroll Ltd. (Hong Kong) (30%); Hilton Service Corp. (51%); International Company for Touristic Investments, Sae (Egypt) (20%); Jupiters Management Ltd. (Australia) (66.6%); Jupiters Ltd. (Australia) (19.9%); Windsor Casino, Ltd. (Canada) (33.3%); Yeditepe Beynelmilel Otelcilik Turizm Ve Ticaret Anonim (Turkey) (25%); Hilton Beverage Corp.; New Orleans Hilton Beverage Corp.
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