A family feud, an unusual blueprint for corporate governance and a global downturn in the hotel industry may test investors' appetite for shares of Hyatt Hotels Corp when it goes public next week. The $931 million initial public offering for the hotel operator is by far the highest-profile deal slated for next week.
Five other companies are also expected to debut in what could be the second-busiest week for IPOs this year. Hyatt's foray into the public market comes at a time when lodging stocks are on the mend. Analysts said Hyatt's marquee name and solid balance sheet could drive the stock.
But interest could be sapped by Hyatt's dual-class ownership structure, which places control of the company firmly in the hands of the Pritzker family, which owns the company. Investors may also be turned off by the Pritzkers' history of bitter infighting. In an October 19 prospectus, Hyatt warned that another dust-up could hurt shares.
One issue is Hyatt's proposed corporate governance plan. After the IPO, the Pritzkers will own 62.4 percent of all outstanding shares and 80.7 percent of all Class-B shares. Each Class-A share is worth one vote, while each Class-B share is worth 10 votes.
The entire proceeds of the IPO are expected to go straight to the Pritzker family trust, Hyatt said in its latest prospectus. If the deal's underwriters exercise an option to buy more shares, that added capital will go to Hyatt. Hyatt, which netted $3.8 billion in revenue in 2008, plans to sell 38 million Class-A shares, priced between $23 and $26, next Thursday. The shares are set to make their debut Friday on the New York Stock Exchange under the symbol "H".
The deal's underwriters are led by Goldman Sachs & Co, which has a 7.5 percent stake in Hyatt. Talk of a Hyatt IPO has been percolating since 2002, when the Pritzkers said they reached a settlement to break up the $15 billion dollar empire, of which Hyatt is the crown jewel. That year, Liesel Pritzker, a former child actress, and her brother Matthew sued their father Robert and other family members, accusing them of looting their trusts. The case was eventually settled in 2005.
Einhorn noted that Hyatt shares are relatively cheap compared with both Marriott and Starwood. Both stocks have risen amid signs of an economic recovery. Through Thursday, the Dow Jones US hotels index was up 43 percent this year. But the bulk of Hyatt's hotels fall under the upper-upscale segment that relies heavily on business demand, which has been hobbled by corporate cost-cutting in the past year.
Hyatt's revenue for the first six months of 2009 fell 18.5 percent from a year earlier. "High-profile names don't always make for good IPOs," Sweet said. Next week marks the seventh consecutive week of companies listing new shares on US exchanges, the longest string for IPO activity this year. US IPO activity totals $11.6 billion in 2009, a 56 percent drop from 2008, according to the Thomson Reuters Investment Banking Scorecard.