Hyatt raised more than $1bn last week in what was the second largest IPO this year on the NYSE. The stock price climbed as investors liked the look of its strong balance sheet and bought into a recovery story for hotels.
But the share price remains at a significant discount to industry leaders like Marriott reflecting worries about corporate governance.
The company sold its shares at $25 last Thursday, pricing its offer at the high end of the forecast range of $23 to $26. They closed that day at $28.
The initial listing raised $950m and under writers have bought another $143m. But this cash will be used to pay-off members of the Pritzker family, who have retained overall control of the company and can do so even if their economic interest falls below 50%.
One leading analyst, John Arabia of Green Street Advisors, said Hyatt's corporate governance was the "worst in our coverage universe". He pointed out that the Pritzkers could retain control even if they sold out shares leaving them with just a 15% economic interest in the company.
These corporate governance issues and potential for further disputes within the Pritzker family warrant a substantial discount, said Arabia. The discount against Marriott is around 20% comparing enterprise value to EBITDA.
This is despite Hyatt having a much stronger balance sheet than its immediate rivals and 10 times the amount of cash held by Starwood, Marriott or InterContinental which each have just over $100m.
The listing puts Hyatt third on the ranking of US hotel companies by market capitalisation at $4.9bn, behind Marriot ($9.6bn) and Starwood ($6.2bn) [Bloomberg, 9-11-09].
HA Perspective: Hyatt managed to list despite at least three IPOs being pulled in the preceding week. The timing thus looks odd given what remain difficult market conditions but it reflects the needs of the Pritzker family. Investors were prepared to overlook the family squabble in favour of the perceived bargain.
The float also looks good news for Blackstone as it considers its options for Hilton. According to reports it is seeking to reduce the debt in the company by $5bn from $20bn. The Wall Street Journal reported that Blackstone is looking at injecting $800m in new equity to push the debt reduction plan through.