Hyatt Hotels Opens Up 8% After Pricing In Range

Hyatt Hotels Corp.'s (H) IPO proved Thursday what every hotel operator knows: if priced right, even flawed space can be filled.

Despite its presence in an industry that's full of vacancy signs, the company's initial public offering enticed investors to buy, with the stock pricing within its expected range and trading higher at the open.

The deal's early performance provided welcome relief during a rocky period in the new-issuance market. In the last seven days, two IPOs that were expected to debut--energy company AEI and bank PlainsCapital Corp.--were pulled due to market conditions, and several offerings in recent weeks have priced poorly and traded down on their first days.

Hyatt's stock opened at $27 a share on the New York Stock Exchange, up 8% from its initial public offering price of $25. All 38 million shares in the offering were sold by the founder's descendants, the Pritzker family, at a price within its expected range of $23 to $26 a share. Goldman Sachs Group Inc. (GS) managed the deal.

The hotel chain, the 10th-largest in the world based on number of rooms, was plagued with investor uncertainty about its offering in recent weeks, but analysts were in agreement that the company's price range represented a bargain. Morningstar Inc. (MORN) analysts valued the shares at $25, while IPOdesktop.com President Francis Gaskins said the company priced its shares below the company's book value.

Among the positives for Hyatt are its strong brand name and a balance sheet that could be the envy of any business, with low debt and a strong cash stockpile compared to its competitors. Optimists could argue that if investors want to buy a hotel chain, Hyatt is the one to own.

A strong balance sheet "gives them dry powder to strengthen their position strategically. They can be acquirers at time when there are not a lot of buyers out there," said Todd Jordan, a managing director and analyst at Research Edge LLC in New Haven, Conn.

Hyatt's successful debut comes at a time when the entire lodging industry is in the midst of a slump due to last year's economic downturn. Hyatt hasn't been spared: In the first three quarters of the year, it posted a loss. The company says 2009 marked some of the most significant declines in revenue per available room experienced in recent history, being steeper and having a greater negative impact on its bottom line than at any other time in at least two decades.

Because hotels carry a high fixed-cost base, investors must hang their hopes on the economy pulling companies like Hyatt back out of the slump.

Hyatt's debut comes during a period of uncertainty in the IPO market itself. Broader stock indices have been volatile in recent weeks, and investors have been demanding price discounts on new offerings. In the latter half of October, a number of deals performed poorly on their first days of trading.

Hyatt didn't receive any money from the offering, since all the shares were sold by the Pritzker family, whose internal disagreements are so intense that the IPO prospectus contained a warning that they could disrupt its business. The Pritzkers will retain voting control over Hyatt, thanks to a dual-class share structure that gives the family 10 votes per share

Hyatt, which was originally set to trade Friday, moved the deal up by one day. It is the first of two IPOs that were expected to begin trading Thursday; the other is genealogy Web site Ancestry.com Inc., which is set to trade on the Nasdaq under the symbol ACOM.

-By Lynn Cowan, Dow Jones Newswires; 301-270-0323; lynn.cowan@dowjones.com

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