"It's a terrific deal," said Paul Slattery at broker Kleinwort Benson. "It is far more extensive than we thought, covering gaming as well as hotels, and gives Ladbroke more flexibility than we imagined."
The stock market agreed, sending Ladbroke's shares 3.5p higher to 209.5p and making them one of the best-performing blue chips of the day.
At present Hilton Hotels Corp owns the Hilton name in the United States while Ladbroke holds the rights everywhere else through its Hilton International (HIC) subsidiary.
In the new alliance grouping 400 hotels in 49 countries, both companies intend to co-operate from next year on sales and marketing, loyalty programmes and hotel development.
Under the terms of the outline deal, Hilton Hotels Corp will take a 5 per cent stake in Ladbroke on completion early next year. A reciprocal standstill agreement allows the American group to increase its holding in Ladbroke to a maximum of 20 per cent.
In return, Ladbroke can take up a 20 per cent participation in HHC's hotel and gaming developments in the US.
"We are putting our money where our mouth is," said Stephen Bollenbach, HHC's president and chief executive officer. "This alliance gives us the critical mass to lead the global hotel industry."
Peter George, Ladbroke's chief executive, revealed that a full-scale merger or a joint venture had been considered, but they opted for the alliance.
The two men said the deal could be worth tens of millions of dollars when cost savings and extra sales were combined, but the benefits were unlikely before 1998.
Mr George will join the HHC board while Mr Bollenbach will become a director of Ladbroke.
The alliance provides for the formation of a jointly owned company to market and develop the Hilton brand around the world. HHC's guest loyalty programme, which has 5 million members, will be extended worldwide. The companies will also participate in each other's future hotels development.
The Hilton brand was separated in 1964 when Hilton International was spun off from the American operation. Ladbroke acquired Hilton International in 1987.
News of the Hilton deal came as Ladbroke announced first-half pre-tax profits of pounds 72.8m before exceptional items, a 29 per cent increase on last year.
Investment Column, page 16