Patriot Agrees to Exclusive Talks With Investment Group

Patriot American Hospitality Inc., one of the nation’s largest hotel companies, said Tuesday that it will enter into exclusive negotiations with a group led by financier Leon Black for a $1-billion investment, rejecting a rival proposal from Hilton Hotels Corp.

Beverly Hills-based Hilton had proposed to purchase about $1 billion of the company’s hotels--which include Summerfield Suites and Wyndham hotels--and make a $350-million equity investment, people familiar with the talks have said.

A Hilton spokesman said the company would not comment on Patriot’s announcement.

Dallas-based Patriot, a real estate investment trust, has been seeking a financial infusion after a hotel buying spree last year left the company with a crushing $3.8 billion in debt.

Patriot shares have fallen 78% in the last year; they slipped an additional 6 cents Tuesday to close at $5.56. Hilton rose 25 cents to close at $14.94. Both trade on the New York Stock Exchange.

Patriot said it is seeking the sale of $1 billion worth of convertible preferred stock to the Black-led investment group.

The company set a Feb. 26 deadline to reach a definitive agreement with the group, which also includes Apollo Real Estate Advisors, Thomas H. Lee Co., Beacon Capital Partners Inc. and Rosen Consulting Group.

Patriot would drop its status as a REIT as part of the deal to free it from a requirement to pay out most of its earnings as dividends, said a source familiar with the talks. The investment group would get eight of the 19 seats on Patriot’s board, the source said.

The investors also expected to complete an agreement with a bank group led by Chase Manhattan Corp. to refinance most of Patriot’s debt, according to people familiar with the situation. Officials with Chase have declined to comment.