After a 27-year absence, global hotel company Hyatt is expected to go public late this week with an initial public offering priced between $23 and $26 per share.
With the market’s unsteadiness, interested parties which likewise may be considering public offerings, including Kayak, Amadeus, Travelport and Sabre, as well as the entire lodging and travel industry, will be watching how Hyatt fares as it takes the IPO plunge.
But, this IPO would be of a different sort for Hyatt, which has seen its net income steadily fall from $315 million in 2006 to $270 million in 2007 and $168 million in 2008.
That’s because, according to its latest registration statement of Oct. 30, 2009, Hyatt is expected to receive none of the roughly $900 million in proceeds from its projected sale of 38 million Shares of Class A common stock in the IPO. All of that money would go to sometimes-warring Pritzker family members, who control and will continue to control the hotel chain.
However, there is a chance that Hyatt, with its 415 Hyatt-branded properties in 45 countries, would receive some payout in the end. The underwriters have the option to purchase additional shares, and if they do so to the max, then Hyatt could end up with $124.6 million in proceeds, assuming the shares sell at the midrange price of $24.50.
In that case, Hyatt states it would use the $124.6 million “primarily for working capital and other general corporate purposes, including capital expenditures. Additionally, we may use a portion of the net proceeds for the acquisition of, or investment in, new properties or businesses that complement our business.”
However, there’s a big difference between $900 million and $124.6 million.
In the short term, at least, this transaction will benefit the Pritzkers, and not necessarily Hyatt’s brands, guests, franchisees and employees.
Still, the travel industry will be monitoring the fate of the IPO to see how it may impact would-be imitators.
Incidentally, proceeds or not, the Hyatt stock symbol on the New York Stock Exchange would be pretty cool. The symbol would be H.
There’s no surprise on the use of proceeds: the ultimate goal of the family was clear the moment Goldman Sachs and Madrone Capital Partners were hired to manage the process.
What is a surprise is the timing of the IPO, and the estate planning and tax implications. After all, taxes are becoming such a hot issue: the OTA kerfuffle is yet another example of how politicians are coming up with as many ways as possible to tax anything they can. High net-worth individuals frequently flee onerous tax jurisdictions; I’d argue that’s one of the key drivers behind Phoenix’s incredible growth during the 90s.
Well, Brian, does the IPO place Hyatt in a better or worse position than it is today? I guess at least we’ll have some new visibility into the company’s position.
I disagree that the OTA hotel tax issue is about politicians trying to tax anything they can. I don’t think that is driving the issue. I think it is about cities feeling they are getting ripped off, that OTAs are artificially inflating their profits at the cities’ expense. At least that is the perception.
Hi Dennis, I probably used stronger language than I meant to. In my work with cable television, tax issues with municipalities came up all the time. We had a joke: “If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it.” That kind of thinking probably unfairly colors my thoughts about OTAs and the tax situation they face, especially when I read your many tweets on the subject.
It is my impression that for many years, cities were not as aggressive as they are now at collecting taxes, not just in travel, but across the board in property taxes, use taxes, etc. The environment has forced them to re-evaluate their budgets as well as their enforcement. It’s my impression that the municipalities believe they are owed back taxes and the OTAs are confused because it seems that these rulings are coming out of left field.
And, as far as whether this places Hyatt in a better or worse position, that is a judgment for H shareholders to make. It is my impression that the perceived difference in tax consequences today vs five years from now play a big role in deciding whether an IPO makes sense in this environment. I understand there is a kind of witching hour in 2014 when a lot of corporate paper comes due. If the Pritzkers desire a liquidity event for themselves while providing the organization with corporate governance mechanisms valued by minority shareholders; well, that has to be a win for the company even in light of the relatively scant return to H coffers.