U.S. private equity firm Blackstone Group agreed on Tuesday to buy Hilton Hotels Corp. for about $20 billion plus debt, the richest in a series of recent private equity offers for hotel companies.

Under terms of deal, Blackstone will pay $47.50 per share in cash, a 32 percent premium to Tuesday's closing price, for one of the most prominent global hotel brand names.

Ahead of the post-close announcement, shares of Hilton had risen 6.4 percent to close at $36.05 on the New York Stock Exchange.

Options volatility and volume in Hilton stock was well above average before the close of trade on Tuesday, said Paul Foster, an options strategist at theflyonthewall.com.

Blackstone, which raised $4.1 billion in an initial public offering late last month, said it intends to invest in the Hilton properties and brands globally to grow the business.

The hotel industry is enjoying a multiyear boom as robust demand has allowed hoteliers to steadily raise rates. The upbeat market environment, supported by limited construction of new hotels, has made lodging assets hot commodities.

Hilton is worth $20.1 billion, based on 424 million shares on a diluted basis at the end of March, at the price Blackstone is paying. Hilton reported more than $7 billion of debt during its January-March quarterly results.

A spokesman for Blackstone said the group was not revealing the debt and equity breakdown of the deal at this stage.

Many investors think the notoriously cyclical U.S. hotel industry has more room to grow and could provide risk-adjusted returns that outperform other asset classes, according to Thomas Callahan, an analyst with hospitality industry tracking firm PKF Consulting in San Francisco.

The perspective is that the industry still has a few more good years left in this upturn that began -- depending on how you count it -- several years ago, Callahan said.

Blackstone already has a significant portfolio of hotel and resort properties that includes more than 100,000 hotel rooms in the United States and Europe. Its properties include La Quinta Inns and LXR Luxury Resorts and Hotels.

Hilton's brands include Hilton, Conrad Hotels & Resorts, Doubletree, Embassy Suites, Hampton Inn, Hilton Garden Inn, Hilton Grand Vacations, Homewood Suites by Hilton, and The Waldorf-Astoria Collection.

The Hilton chain was founded in 1919 by Conrad Hilton, the great-grandfather of U.S. celebrity socialite Paris Hilton.

Her grandfather Barron Hilton, co-chairman of the Hilton board of directors, owns 5.3 percent of Hilton shares, according to the company's April proxy. He is the brother of the late Conrad Nicholson Hilton Jr., called Nicky, who was the first husband of actress Elizabeth Taylor.

The deal is expected to close during the fourth quarter of 2007 and was approved by Hilton's board of directors on Tuesday, the company said.

Blackstone said it expected no significant divestitures as a result of the transaction.

So far this year, several private equity groups have made multibillion-dollar offers for hotel assets.

Investors believe the limited supply of new hotel rooms in key markets means they can achieve higher returns by buying and investing in existing hotels, said Joseph Toy, president of Hospitality Advisors LLC in Honolulu.

The game here is acquire at a premium, then renovate and reposition, Toy said. And with capital as abundant as it is, it's something we're seeing across the market, including Hawaii.

Last month, Goldman Sachs' real estate fund, Whitehall, said it would buy Equity Inns Inc., a mid-market hotel chain, in a deal worth $2.2 billion including assumed debt.

Also in June, Legacy Hotels Real Estate Investment Trust TO> , the biggest lodging REIT in Canada, said it was in talks with investment groups over a possible takeover and had received nonbinding offers valuing its equity at $1.36 billion.

In February, luxury hotel operator Four Seasons Hotels Inc agreed to a $3.37 billion takeover offer from a group that included Bill Gates' Cascade Investments LLC and Saudi Prince Alwaleed bin Talal.

In January, a unit of Wall Street investment bank Morgan Stanley said it would buy privately held REIT CNL Hotels & Resorts Inc. in a transaction worth $6.6 billion.

Hilton said last month that it had a letter of understanding with Somerston Hotels UK Ltd to develop new hotels in the United Kingdom.

The hotel workers union UNITE HERE applauded the proposed Blackstone deal on Tuesday, saying it enjoys a positive partnership with Hilton and that Blackstone has demonstrated its commitment to fair treatment for workers.

Blackstone shares closed up 45 cents at $29.72 on the New York Stock Exchange on Tuesday.

(Additional reporting by Michael Erman, Paritosh Bansal and Jennifer Coogan in NEW YORK, Karey Wutkowski in WASHINGTON, Jean Yoon in SINGAPORE and Kevin Krolicki in Detroit)

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