You'll have to forgive me for that headline. I suppose I could have titled today's column: "Hilton Loses Independence on Day Before Independence." Or even: "Newly Public Blackstone Takes Hilton Private." Instead, I went for the cheap laugh. I'm so ashamed.

Because the truth of the matter is, today's column has nothing whatsoever to do with the famous-for-being-famous blonde ex-con. Rather, it's Hilton Hotels (NYSE:HLT), the company that her great-grandfather founded, which announced Tuesday that it's selling out to Blackstone (NYSE:BX). The price of the all-cash transaction: Nearly $26 billion including assumed debt, as Blackstone antes up $47.50 per share -- a 40% premium over Hilton's share price at the close of trading the day before the announcement. (As usual, the deal isn't final until the shareholders approve it. Management is targeting a closing date sometime in the fourth quarter of 2007.)

Caveats aside, judging from the rush to buy hotelier shares as soon as the markets reopened yesterday, I'm guessing a lot of investors expect this to be the start of a wave of service-industry consolidation. Since Tuesday, Wyndham's (NYSE:WYN) market cap has increased 2%, Intercontinental Hotels (NYSE:IHG) shares fetch 3% more, and Marriott (NYSE:MAR) and Choice Hotels (NYSE:CHH) are both up 7%.

The disparity in price hikes suggests that investors expect Marriot and Choice to be the next ones put in play. But will they? And perhaps more importantly, should they? Let's crunch a few numbers (and to "net out" the hype factor, we'll use just-prior-to-Hilton-buyout-announcement figures for everyone but Hilton itself):

Company

P/E Ratio

Price-to-Free Cash Flow

Projected Growth Rate

Hilton Hotels

35

260

13%

Marriott International

25

85

14%

Choice Hotels

24

20

14%

Wyndham Worldwide

21

negative

12%

Intercontinental Hotels

12

32

12%

Three things jump out at me from this table:

  • First, investors bid up the shares of the two next most expensive hotels much higher than those of Wyndham and Intercontinental. Perhaps they're betting that Marriott and Choice's faster growth rates will make them the most attractive next-in-lines.
  • Second, if investors are right, and the also-rans get bought out at anything like Hilton's new P/E multiples, then there are significant gains to be had in this sector.
  • But third, finally, and perhaps most importantly -- none of these shares looks particularly "cheap" to me. I mean, the only stock with a decent PEG ratio is Intercontinental -- and its free cash flow has been going nowhere over the past several years. Wyndham is actually burning cash. And Marriott's multiples look way out of whack. For my money, Choice appears to be the closest thing to a bargain of the bunch, but even it is too rich for my blood.

Then again, no one's offering to pay $4.1 billion for a piece of my investing acumen. Just maybe, these Blackstone folks, and the people piling on behind them, know something I don't.

Some Fools know quite a lot about hotel investing. Take Bill Mann of Motley Fool Hidden Gems, for example. The last time he recommended that Hidden Gems subscribers buy a hotel stock, Carl Icahn swooped in and started a bidding war that helped net our members a 57% profit. Bill recently picked another company in the hotel biz, and it's already up 64% without any help from private equity. Learn who it is, and why we like it even better than we like Hilton -- the company, not the heiress -- when you accept a free, 30-day trial to Hidden Gems.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.