Bollenbach placing heavy bet on Hilton Chief balances attack with hotels, casinos

THE BALTIMORE SUN

At the helm of a company that has resisted change, Stephen F. Bollenbach is full of surprises lately.

The new chief executive of Hilton Hotels Corp. is breaking the rules both of a tradition-bound company and his own iconoclastic career. In a career marked by breaking up struggling companies to rebuild them, followed by moving on quickly, this time he is making bold bets to build on Hilton's existing businesses and saying he plans to stay for the rest of his career.

On June 5, he agreed to bet a big chunk of Hilton's future on a $3 billion takeover of casino operator Bally Entertainment Corp., one of an expected flurry of casino deals to come. He is also building an entire new mid-priced system of franchised Hilton hotels, and pushing to reunite Hilton's U.S. hotel business with a Hilton International division it spun off to shareholders in 1964.

"He's not just a financial alchemist," said John Rohs, a casino and hotel analyst for Schroder, Wertheim & Co. in New York. "That gives Steve half a loaf on his talents. He's a very good strategic manager."

Bollenbach may not be just a financial operator, but what an operator he is. In Maryland, he is best known as the chief financial officer who masterminded the bitterly controversial, amazingly successful split of the old Marriott Corp. into two companies, one of which manages 1,000 plus hotels and the other of which owns 121 hotels and partly owns 267 more.

Before that, he helped Donald Trump rescue himself from debt, and before that he helped the former owner of the Holiday Inn chain reinvent itself as a casino company, in part to fend off a takeover bid from Trump.

Most recently, he was chief financial officer of Walt Disney Co., but with newly recruited President Michael Ovitz expected to succeed Chairman Michael Eisner, Bollenbach bolted for the top job at Los Angeles-based Hilton in February.

The 53-year-old financier made his reputation with liberal doses of both cash and sass. Bollenbach's bust-up of Bethesda-based Marriott made the Marriott family hundreds of millions of dollars and his moves as CFO of the Trump Organization saved The Donald from bankruptcy. Reporters gush over his Ferrari and his penchant for wiseacre jokes, like his recent line about wanting to hire Bill Marriott to join a bevy of top ex-Marriott executives he recruited to Hilton "but he wants too much money." He can take it too: at the height of the Marriott controversy, he made a point to compliment a reporter who summed up his Marriott deal as "lawyer's poker," a pun on Michael Lewis' Wall Street memoir "Liar's Poker."

This time, his bosses are named Hilton and the job is not so much a rescue as a renaissance.

Clearly, people think he can make serious money again. Hilton's stock jumped $15 to $89.50 in a couple of days after his appointment, and has climbed $50 to close at $113.875 Friday. But he's trying to do it a different way this time because he thinks Hilton's two businesses -- hotels and casinos -- are pretty good and getting better.

The hotel business has been on a tear as it bounces back from a recession that hit the overbuilt lodging industry especially hard. An industry rule of thumb is that hotels become profitable at about 65 percent occupancy, and as more rooms fill up the extra revenue becomes almost pure profit because it costs hotels little to handle each extra guest. Hilton's hotel occupancy was 72 percent in the first quarter of 1996, up from 66 percent in 1992. The casino business is going through a wrenching consolidation in which Hilton is expected to emerge as one of five or six survivors, even though Bollenbach's predecessors planned to spin off the casino company as recently as last year. And the casino business is growing quickly in traditional havens such as Las Vegas and Atlantic City, even as the rush of new jurisdictions to legalize wagering has petered out.

"They're certainly a very strong factor in anyone's analysis of casino companies that will remain at the end," said Ralph Barry, a spokesman for Harrah's Entertainment Inc. the successor company to the Holiday Inn chain Bollenbach helped break up. Why? "Size and experience," Barry said, plus access to cheaper loans than smaller players.

Bollenbach declined to be interviewed for this story. But in a recent speech to analysts, he said he plans to add more of the high-class, downtown hotels for which Hilton is known because they are virtually impossible to replace in today's market.

"Now is a great time to own big hotels, and we have some of the best," he said. "And it's a great time to buy big hotels. We will be a buyer in that end of the market where we see little -- if any -- competition coming on line for the next five to 10 years. The opportunities are there to buy at well below replacement cost."

Hilton is also looking to make some kind of deal with the company that controls the Hilton brand name internationally -- the U.S. company owns international hotels under the name Conrad, after former chairman Conrad Hilton -- but it won't say what kind of deal. The company also wants to boost its position in medium-priced hotels by driving into management and franchising of investor-owned Hilton Garden Inns. The company hopes to get 100 Garden Inns open by 2000.

"Steve's approach has been to have a relatively balanced attack, and it will remain a relatively balanced attack," between hotels and casinos, Rohs said. "Bally's happened to be an opportunity that presented itself. It was a sizable opportunity and one that was here right now."

And had to be acted upon quickly, because ITT Corp. was also talking to Bally's. Indeed, Bally's broke off talks over Hilton's initial refusal to pay its price of $30 a share. But the $29.29 a share all-stock deal was a lot closer to Bally's figure than the $24 to $26 Hilton reportedly had been offering, a reflection of the leverage sellers have as players try to strengthen their position in Las Vegas and Atlantic City.

"Proliferation [of gambling to new states] ruled the roost from 1991 to 1994, and proliferation came to a screeching halt," Rohs said. He said there will be little chance for casino companies to gain new markets "without a good old-fashioned recession" to scare politicians into chasing job creation they might pass on during better times, and he doesn't think that recession is in the cards any time soon.

The good news is that Vegas has been booming, and even XTC long-lagging Atlantic City is showing signs of life. The gambling winnings of casinos in Clark County, Nev., jumped to $5.7 billion last year from $3.4 billion in 1989, said Chuck Anderson, a statistician at the Nevada Gaming Control Board.

In Atlantic City, casino winnings climbed just under 10 percent last year to reach $3.7 billion, according to the New Jersey Casino Control Commission. Three big casino companies are building new Atlantic City resort-casinos.

From the deal, Hilton gets Bally's Park Place and Bally's Grand in Atlantic City. It also will pick up two more casinos (one still under construction) in Las Vegas.

"Demand has been growing steadily since the end of the 1980s," said Ricardo Gazel, associate director of the Center for Business and Economic Research at the University of Las Vegas. "With the spread to other areas of the country, gambling has become more and more accepted. As people are exposed to it in Illinois, they want to come to the mecca, and that's Las Vegas."

Vegas, indeed, is booming, with new shrines to gambling and entertainment rising in the desert, smack in the middle of a market that is adding jobs faster than any metropolitan area in the country. The business is getting bigger, tougher, and more expensive to play in. You can't just toss up a hotel any more, not when people are building replicas of the New York skyline, or thrill rides taller than the Eiffel Tower. Casino operators have added 10,000 Vegas hotel rooms to a base of 80,000 since 1993, and are expected to add 20,000 more in the next two or three years. And well they might: hotel room occupancy in Vegas runs around 90 percent most of the time.

But Gazel said the emerging megaplexes have not notably hurt the existing casinos so far, so companies like Hilton that are buying existing hotels are not necessarily going to be dealt to from the bottom of the deck.

"The [hotel room] occupancy rate went up" when the new casinos opened, he said. And he thinks the existing players may be better positioned than the new resorts because the new places cost so much to build and will have to build a customer base that Hilton and Bally casinos already have.

Rohs said much the same thing will happen in Atlantic City.

"There will be a significant increase in visitation to the town," he said. "That will help everyone."

Pub Date: 6/16/96

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