In the most expensive hotel buyout ever, Blackstone Group has agreed to buy Hilton Hotels (NYSE: HLT) for roughly $20 billion in cash. The private equity firm — which ranks as the world’s largest with $88 billion in assets under management—will pay $47.50 per share of HLT. The Blackstone offer represents a 40% premium to Monday’s closing price of $33.87 per share of HLT. Blackstone will also assume $6 billion in HLT debt, ratcheting the total deal value up to $26 billion.

Hilton Hotels owns, manages and franchises hotels under the Hilton, Conrad Hilton, Doubletree, Embassy Suites, Homewood Suites, Hampton Inn, Scandic and Waldorf-Astoria Collection brands. The Hilton portfolio stands at 2,800 hotels with 485,000 rooms. Hilton directly owned just 6.9% of those rooms at the end of June. A full 60% of all Hilton hotel rooms are franchised.

The deal is expected to close in the third quarter. When it does, says Wachovia Capital Markets analyst Jeffrey Donnelly, Blackstone will become the largest hotel company in the world. The analyst does not expect Blackstone to carve up Hilton as it did with Equity Office Properties, another public company that it took private for $39 billion earlier this year.

“It seems Blackstone expects to realize synergies with its existing hotel portfolio and intends to accelerate Hilton’s growth likely through more aggressive efforts to expand the network,” says Donnelly, who “wouldn’t be surprised” to see pieces of the Blackstone hotel empire explore a public market exit before 2010. One reason is that public hotel companies are becoming scarce due to heavy buyout activity.

Last year, Hilton spent $5.7 billion for the lodging division of Hilton Group PLC. The deal reunited the domestic and international Hilton brand names, giving the U.S.-based hotel company added reach abroad. Aside from that deal, Hilton has sold nearly $5 billion in hotel and related properties over the past three years. Like other hotel companies, Hilton has in recent years sold off many properties while growing its revenue base from third-party management fees.

Lodging analyst Amit Kapoor of Gabelli & Co. expects to see more hotel companies flee the public market in coming weeks. “Everything is up for grabs. There’s enough liquidity in the capital markets, and the public-private market valuation gap puts all major lodging companies in the private equity crosshairs.”