UPDATE 3-Hyatt Hotels shares surge in NYSE debut

By Deepa Seetharaman NEW YORK, Nov 5 (Reuters) - Investors snapped up the shares of Hyatt Hotels Corp in their debut on Thursday, enticed by the company's strong balance sheet and prospects for a robust rebound in the lodging industry in the next two years. Hyatt shares surged more than 12 percent to $28.10 in afternoon trading on the New York Stock Exchange. The stock had priced at $25 Wednesday evening, within the expected range. "The hotel industry is going to witness a significant recovery in the outer years, despite the fact that the short- term operating fundamentals will remain very, very challenging," said John Arabia, a lodging analyst with Green Street Advisors. The $950 million initial public offering of Hyatt is this second-largest on the NYSE this year after Banco Santander . It is the eighteenth IPO on the exchange this year. The surge in Hyatt shares "instills some much-needed confidence back into an IPO market that has had three deals in one week postponed," said Scott Sweet, a senior managing partner at advisory firm IPO Boutique. The shares of Ancestry.com Inc, which also debuted on Thursday, rose 10.5 percent on the Nasdaq. Proceeds from the sale of the 38 million Class-A shares will go to the Pritzker family, which controls the company. If the underwriters, led by Goldman Sachs Group Inc, exercise an option to buy more shares, that capital would go to Hyatt. FIVE TIMES THE CASH Hyatt's IPO comes just as lodging stocks are on the mend. The Dow Jones U.S. Hotels index has shot up 50 percent this year on signs of an economic recovery. Two of Hyatt's publicly-traded rivals, Marriott International Inc and Starwood Hotels & Resorts Worldwide Inc, have both forecast a lackluster 2010 on sluggish corporate demand and low room rates. Still analysts expect the industry to rebound sharply in the subsequent three years. This outlook coupled with Hyatt's strong cash position helped fuel the surge in Hyatt's stock, analysts said. Chicago- based Hyatt has $1.3 billion in cash, more than five times the combined cash of Marriott and Starwood. Although the stock is performing better than its initial pricing, Arabia noted it is still trading at a discount based on its EBITDA valuation. This is due partly to concerns over the level of control of the Pritzker family has over the company. The family owns the bulk of Hyatt's Class-B stock, which is worth 10 votes per share. Class-A shares, by contrast, are worth one vote each. "The stock is currently trading at a modest discount on certain valuation metrics," Arabia said. "That's partially warranted due to the company's well publicized corporate governance issue." Separately, several dozen strikers from Unite Here Local 2marched in front of a Grand Hyatt in San Francisco on Thursday, marking the first day of a three-day strike focused on healthcare. The hotel is owned and operated by Hyatt. In a statement, the president of Local 2, Mike Casey, said: "It's intended to send a clear signal to this corporation that they cannot use a temporary downturn to permanently drive down workers' living standards." (Reporting by Deepa Seetharaman; editing by Gerald E. McCormick, John Wallace and Andre Grenon) Keywords: HYATT/ ([e-mail] [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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