The potential benefits of the de-merger are the following: HMC would be valued for the chance of appreciation in the property holdings when the real estate market recovered, not on the basis of earnings, thereby reducing the pressure to sell properties at depressed prices.
Inthe Economic recovery tax act ended the majority of tax incentives. Thus Project Chariot aims to give shareholders the business upside and bondholders the real-estate downside. Shareholders stand to gain while bondholders will lose if Project Chariot is implemented.
Under Project Chariot, MC would split into two companies, creating a special stock dividend for existing MC shareholders. This dividend would give stockholders of MC a share of stock in the new company, matching each share currently held in MC.
If the Project Chariot is implemented i. MC went into joint ventures by constructing hotels and selling them to the Equitable Life Insurance Society, which became a very profitable and powerful growth strategy. After about two hours on the stand, Mr.
During the late s, MC had promised in their annual reports to sell off some of their hotel properties and reduce their burden of debt.
MC went into joint ventures by constructing hotels and selling them to the Equitable Life Insurance Society, which became a very profitable and powerful growth strategy. So all the risky investments are highly leveraged with bond holders exposed to the risk.
On the other hand, the old company would retain the hotel properties and the pressure to sell properties at reduced prices would be greatly lessened.
All the other bondholders have settled" and the bonds have rebounded to their original value, he said. An economic downturn and the real estate crash resulted in MC owning newly developed hotel properties with no potential buyers in sight and a mound of debt.
We did everything we could to protect the bondholders. However, I also looked at a wider range of time [October 2, pre-announcement through December 31, ].
We think that managers should not only consider the interests of shareholders but also the interests of bondholders, employees, and other related parties. Hart recalled suggesting, "We ought to wait.
If they get… 1. The company continued expansion, entering the market of mid-scale properties and introducing Courtyard in and Fairfield in During the late s, MC had promised in their annual reports to sell off some of their hotel properties and reduce their burden of debt.
Corporate valuation is improved An economic downturn and the real estate crash resulted in MC owning newly developed hotel properties with no potential buyers in sight and a mound of debt. Thus the shareholders would gain at the expense of bond holders and the equity value of the company would increase.
Bollenbach, who had a reputation for creating innovative financial structures in the hotel industry, proposed a radical restructuring for MC. This project is being proposed because the economic slowdown in the late s and the real estate market crash left MC owning many newly developed properties for which there were no buyers, together with a massive burden of debt.
Bollenbach, who had a reputation for creating innovative financial structures in the hotel industry, proposed a radical restructuring for MC.
While the concept of getting smaller or breaking-up might seem counterintuitive for MC, the action has the potential to benefit the company and its shareholders. Earlier in the day, Marriott treasurer Matthew J. DuringMC realized that financial results were only slightly up from the previous year and their ability to raise funds in the capital market was severely limited.
Hence this appears to be a case of risk shifting. The new company MII would have the financial strength to raise capital in order to take advantage of investment opportunities.
Although he knew of the division plan as early as May 7,Mr. After a few minutes, an annoyed Senior Judge Alexander Harvey II, motioned to another juror to elbow the young man awake.
The new company would retain the service businesses of MC and have the financial strength to raise capital and take advantage of various investment opportunities.
Asked if he was angry, he said, "Certainly. Shareholder now have majority stake in a corporation with a lower probability of default while all the risk is transferred to debt holders. They can concentrate on core businesses thus improving efficiency and value.
Thus bondholders will find that their investment gets tied to risky real estate assets whose appreciation is uncertain.
Management is entrusted with the responsibility to increase shareholder value and their main focus should be on investing in projects that accomplish that task. This responsibility is even more important in the case of a B2C company like Marriott. Bollenbach wait before implementing the division plan.
Marriott appeared visibly annoyed with the proceeding.4 Drawing on the financial ratios in case exhibit 9 how much debt could from FINANCE BUFN at University of Maryland, College Park Drawing on the financial ratios in case exhibit 9, Why is Marriott’s chief financial officer proposing Project Chariot?
2. Why is Marriott's chief financial officer proposing Project Chariot? What is your assessment of MC's financial condition? Is this project necessary for the company's survival?. In early May, five days after the last bonds were sold, Mr. Chichester's boss, Marriott Chief Financial Officer Stephen Bollenbach, proposed another spinoff, this time dubbed "Project Chariot.
Why is Marriott 's CFO proposing Project Chariot? 2. Is the proposed restructuring consistent with management 's responsibility? 3. The case describes two conceptions of managers ' fiduciary duty (p.
9). Which do you favor: the shareholder conception or the corporate conception? Does your stance make a difference in this case?
4. Marriott Project Chariot Marriott Corporation (A) Introduction In J.W. Marriott Sr. founded the Marriott Corporation (MC) and during the s experienced a huge growth. Marriott's main strategy in those days was developing hotel properties around the world and selling these properties to outside investors while retaining lucrative long.
Indeed, Project Chariot, so named because it rhymes with Marriott, was designed to address Marriott's two major problems: its gigantic debt load and its backlog of unsold hotels and other real estate, both hangovers from its building binge of the s.Download