Marriot Restructuring This Is A Case Study On The Restructuring Plan Of Marriot Corporation By Splitting Itself Into Two Companies, Namely, Marriot International And Host Marriot.

1711 words - 7 pages

MARRIOTT RESTRUCTURINGA Written Analysis of a Case by Lloyd TyBrief Synopsis of DataOn October 5, 1992, Marriott Corporation announced their plan to restructure the company by splitting itself into two separate companies. The first of the two companies, Marriott International (MI), would manage and franchise over 700 hotels and motels. In addition, it would manage food and facilities for several thousand businesses, schools, retirement homes and health-care providers. On the other hand, Host Marriott (HM), which was the second of the two companies, was to own most of the hard assets. It would own 139 hotels or motels, 14 retirement communities, and nearly 100 restaurants/shops at airports and along toll roads.The key element in the restructuring plan was that Host Marriott was to keep the debt associated with its assets, rounding to about $2.9 billion. Marriott International would then only have modest debt after restructuring. Their respective risks as investments were reflected through their new security ratings, with HM being rated with a single B by Standard & Poor's, while MI received a rating of single A - both deviating from the pre-restructured company's rating of BBB. To help alleviate HM's position, MI was to provide a $630 million line of credit to HM, though the expiration date of the line was sooner than the maturities of many of the bond issues outstanding. On the part of the shareholders of the former company, one share of stock in each of the new companies was to be given to them for each share of stock they previously held.This announcement caused immediate and opposite price movements for Marriott Corporation's stocks and bonds. Stockholders were elated with the decision, while bondholders were angered, particularly investors who bought bonds just that April. Nonetheless, Marriott management tried to assure bondholders that interest and principal payments would be delivered on time.Main ProblemHow should management, its stock and bondholders treat the situation?Analysis of DataMarriott Corporation's proposed restructuring involves splitting the parent company into two separate entities based on two of its main activities - Marriott International would manage, while Host Marriott would own. Since most of Marriott Corporation's current debts were associated with its asset-purchasing activities, many of the former company's debt was now found in Host Marriott's accounts, leaving Marriott International virtually debt-free in comparison. The restructuring was technically a spin-off which meant that stockholders of the parent company would receive a share of stock in each of the new companies for each stock they previously held, thereby leaving stockholders with ownership in two firms instead of one while no cash was actually transferred. Furthermore, the Marriott family and all stockholders would still own the same percentage in the new companies as what they owned in the parent company.Unlike other forms of corporate...

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