Hyatt Hotels Shares Advance After Offering Boosts IPO Market

By Nadja Brandt and Michael Tsang

Nov. 5 (Bloomberg) -- Hyatt Hotels Corp., the chain controlled by Chicago’s Pritzker family, climbed in its first day of trading after raising $950 million in the third-largest U.S. initial public offering this year.

Hyatt added $1.89, or 7.6 percent, to $26.89 as of 10:03 a.m. on the New York Stock Exchange. The Pritzker family sold 38 million Class A shares at $25 each and will receive all the proceeds from the sale. The total doesn’t include the 5.7 million additional shares the underwriters may purchase, which would push the value to $1.09 billion.

Hyatt was priced near the high end of the forecast range of $23 to $26 after U.S. hotel operators outperformed the Standard & Poor’s 500 Index as the economy recovered from the deepest recession since the Great Depression. The offering came after bankers pulled IPOs of PlainsCapital Corp., Aviv REIT Inc. and AEI in the past week after failing to find enough buyers.

“Investors are being very selective when it comes to IPOs,” said Walter Todd, who oversees $750 million as co-chief investment officer at Greenwood Capital Associates LLC in Greenwood, South Carolina. “Many people have their arms around Hyatt because it’s a well-established company. People don’t want to take the risk with companies they don’t understand.”

Hotel Valuations

Hyatt runs 413 hotels around the world under its namesake brand and will be the third-largest publicly traded U.S. hotel chain based on 2008 sales, data compiled by Bloomberg show.

The mid-point of Hyatt’s offering price range values the company’ stock- and bond-market capitalization at 13 times its estimated 2010 earnings before interest, taxes, depreciation and amortization, based on data from Research Edge LLC.

Marriott International Inc., the biggest U.S. hotel chain, has a ratio of 13.5 on the same basis, Research Edge estimates show. The company’s shares have surged 31 percent this year, beating the 16 percent rise in the Standard & Poor’s 500 Index. Starwood Hotels & Resorts Worldwide Inc., which has jumped 66 percent in 2009, has the same valuation as Hyatt.

Hyatt had a net loss of $31 million in the nine months ended Sept. 30, as revenue fell 17 percent to $2.4 billion, according to a regulatory filing.

Marriott had a loss of $452 million from revenue of $7.53 billion in the same period. Starwood, the second-largest U.S. hotel chain, earned $268 million on sales of $3.56 billion.

Long-Term Debt

Hyatt had $845 million in long-term debt versus $1.3 billion in cash at the end of the third quarter, according to its regulatory filing. At Marriott, long-term debt totaled $2.52 billion, while the Bethesda, Maryland-based company had $130 million in reserves, data compiled by Bloomberg show. White Plains, New York-based Starwood’s long-term borrowings equaled $3.36 billion and it had $113 million in cash.

William Crow, a St. Petersburg, Florida-based analyst at Raymond James & Associates Inc., said demand for Hyatt’s IPO may indicate that investors are growing more optimistic that the global economy is recovering from the first contraction since World War II.

France, Germany and Hong Kong have exited recessions, while the U.S. Commerce Department said last month that the world’s largest economy expanded at a 3.5 percent pace last quarter.

“The pricing toward the upper end is a positive takeaway,” Crow said. “This is an opportunity for investors to make sizeable bets on an economic recovery not just in the U.S. but globally given Hyatt’s global reach.”

50 Percent Rally

More U.S. companies have been offering their shares in the past two months than at any time in almost two years, data compiled by Bloomberg show. IPOs have increased as sellers took advantage of the more than 50 percent rally in the S&P 500 from its March low to unload their stakes.

The revival hasn’t coincided with bigger returns.

The offerings of American companies in September and October outperformed the S&P 500 by 0.5 percentage point on average in the first month of trading through yesterday, the worst performance in Bloomberg data going back 14 years. IPOs by U.S. companies have beaten the S&P 500 by an average 21.3 percentage points since 1995, the data show.

PlainsCapital, a bank-holding company based in Dallas, postponed its IPO yesterday, citing “recent volatility in the financial markets.” The company planned to raise $240 million in its offering.

Aviv REIT, the Chicago-based real-estate investment trust that operates nursing homes in 21 U.S. states, shelved its IPO on Nov. 3. The postponement came just five days after bankers were forced to pull an $800 million offering by George Town, Cayman Islands-based AEI after they couldn’t find enough buyers for the former overseas unit of Enron Corp.

Underwriters

Goldman Sachs Group Inc., the lead underwriter for Hyatt’s IPO, also managed the AEI offering.

JPMorgan Chase & Co. in New York was the sole underwriter for PlainsCapital, while New York-based Morgan Stanley and Citigroup Inc. and Charlotte, North Carolina-based Bank of America Corp. were the underwriters for Aviv’s IPO. JPMorgan, Citigroup and Zurich-based Credit Suisse Group AG, ran the AEI sale along with Goldman Sachs in New York.

Hyatt’s IPO was originally scheduled for today. After the pricing of Hyatt was announced, Ancestry.com Inc., the Provo, Utah-based online provider of family histories, sold 7.41 million shares in an IPO at $13.50 each, the midpoint of its forecast range.

Voting Power

Hyatt set up two classes of shares that give the Pritzker family more voting power than other shareholders.

The family will own about 80.7 percent of the company’s Class B common stock, representing about 62.4 percent of shares outstanding and 78.4 percent of total voting power. Each Class B share is entitled to 10 votes compared with one vote per Class A share, according to company filings.

Penny Pritzker, who served as President Barack Obama’s campaign finance chairwoman and is the first cousin of Hyatt Executive Chairman Thomas J. Pritzker, serves on the board of the company as an independent director.

Hyatt’s IPO has conflicts that allow the founding Pritzker family to benefit ahead of shareholders, research firm Green Street Advisors said in a report last week.

“Simply put, Hyatt’s corporate governance is the worst in our entire coverage universe,” wrote analyst John Arabia at the Newport Beach, California-based firm. “The existing owners are sending a strong signal to outside public shareholders that the Pritzker family will firmly control Hyatt, even if the family’s economic ownership interest falls below 50 percent.”

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net; Michael Tsang in New York at mtsang1@bloomberg.net