July 31, 2004 - The privately held Hyatt hotel chain, the pearl of the Pritzker family empire, is being groomed to go public or to grow by acquisition as early as next year, according to a company document obtained by the Tribune.

Such moves would cap a process launched in March 2003 when the Chicago-based business announced a restructuring that brought domestic and international operations under one umbrella.

The "Global Hyatt" initiative was aimed at improving the quality and consistency of Hyatt products and preparing for growth, though the company at the time said it had no near-term plans for an initial public offering of stock.

But a confidential company document obtained by the Tribune offers more specifics and new information.

"The restructuring ... is expected to improve the company's stance for an initial public offering of stock," according to the document, which was designed to recruit a top executive.

"The plan is to have the appropriate organizational structure in place by the end of 2004 to enable the organization . . . to react exponentially to market-expanding opportunities, such as an IPO or possible acquisition(s)," the document said.

A Hyatt spokesman said the development should not come as a surprise.

"We've been on record about the Global Hyatt initiative in the past," he said. "It has been documented ... that this could lead to number of things, including an IPO, or a merger or acquisition."

He declined to confirm the validity of the document. The Tribune obtained it from a source who received it from Hyatt officials.

With the hotel industry pulling out of an agonizing slump that began in 2001, conditions for a public stock offering are improving, and the Hyatt name would appeal to Wall Street investors, industry observers said.

"Clearly, I think institutional investors would be interested in Hyatt because of the strength of its brand name and the quality of the real estate it owns," said John Arabia, senior lodging analyst with Green Street Advisors. "There would be an interest level, depending on price."

Timing, of course, will be crucial.

"There are several public offerings in the hotel industry either taking place now or that will take place, so there is plenty of competition for Wall Street's money," noted Will Marks, managing director of JMP Securities.

Strategic Hotel Capital LLC, a Chicago company founded by Laurence S. Geller, last month spun off 14 of its 21 hotels into a publicly traded real estate investment trust. Other hotel companies headed to the public market include Dallas-based Capital Lodging and Orlando-based CNL Hospitality Properties Inc.

The IPO market is warming because hotel performance is improving. Also, the total price of a hotel offering would be less than the cost of building a comparable portfolio from scratch, giving investors an attractive way to buy into the industry, said Ted Mandigo, president of T.R. Mandigo & Co., an Elmhurst hotel consulting firm.

"It might cost $300,000 to $400,000 a room to build a Hyatt or a Westin, but it might be available in the market for $200,000 to $250,000 a room," he said.

The "Global Hyatt" umbrella, put into place in March 2003, encompasses Hyatt Hotels Corp., which owns or manages more than 120 hotels and resorts in North America and the Caribbean, and Hyatt International, which owns or manages some 80 hotels and resorts worldwide. Together, they generate annual sales of about $5 billion.

Much of the growth is from Hyatt International, which has about 15 hotels under construction in countries including China, India, Poland, Thailand and the United Arab Emirates.

Industry analysts shy away from putting a price tag on Hyatt, in large part because it is an extremely private organization.

"I have no idea what it would fetch, I don't even know what it owns or what it earns," said one industry observer.

If Hyatt decides to go the IPO route, "it's an opportunity for them to clean up their portfolio," said Mandigo, noting the company may jettison some properties or management contracts that aren't in line with the image Hyatt wants to put forward.

Within the portfolio, "they'll want four-star properties, consistent with the Hyatt name, and full-service properties in major metro areas and a couple of resort locations," he said.

And if Hyatt decides to go after acquisitions, a number of potential targets come to mind, Mandigo, among them Wyndham Hotels & Resorts and Omni Hotels.

Talk of an initial public offering bubbled up in December 2002 after the Pritzker family said it had reached a secret settlement to break up its $15 billion empire and disperse the proceeds among family members.

If the company goes to the public market, it will be carrying some baggage, unless some legal wrangling is resolved by then.

The two youngest grandchildren of patriarch A.N. Pritzker are not included in the breakup plan because their shares in the family business were given away or sold in the mid-1990s by their father, Robert Pritzker, during a post-divorce dispute with their mother.

The two siblings, who once owned 10 percent of the Hyatt chain in trusts created by their grandfather, are suing to have the assets in their trust funds restored.

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