Marriott Corporation: Project Chariot
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Marriott Corporation: Project Chariot
What: Under Project Chariot, Marriott Corporation (MC) would become two separate companies. The new company, Marriott International Incorporated (MII), would consist of MCs lodging, food, and facilities management businesses, as well as the management of its life-care facilities. The existing company, renamed Host Marriott Corporation (HMC), would retain all MCs real estate holdings and its concessions on toll roads and airports.
Why: This project is being proposed because the economic slowdown in the late 1980s and the 1990 real estate market crash left MC owning many newly developed properties for which there were no buyers, together with a massive burden of debt. The new company (MII) would have the financial strength to raise capital in order to take advantage of investment opportunities. The existing company (HMC) would take on the newly developed properties and most of the existing debt. 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.
The fiduciary duty of management is to the shareholders because they are more than creditors; they are the actual owners of the firm. Management is entrusted with the responsibility to increase shareholder value and their main focus should be on investing in projects that accomplish that task. As stated in the case: “U.S. courts had held that corporations have no responsibilities to safeguard the interests of bondholders other than those spelled out by the terms of the bond indenture”.
I first looked at the initial market reaction; the change resulting from October 2, 1992 (pre-announcement) through October 7, 1992 (post-announcement). I used October 7 for my initial market reaction because in 1992 many people may have still relied on newspapers for investment information. In addition, I assessed this narrow amount of time separately because widening the range of dates used to evaluate the change in prices may allow other variables outside of Project Chariot to come into play. However, I also looked at a wider range of time [October 2, 1992 (pre-announcement) through December 31, 1992]. If you can reasonably assume no extraneous variables affected the prices during this time, widening the range of dates assessed can give an idea of the impact to prices after the initial market over/under-reaction (after all the information is fully disseminated). Observations:
Shareholder wealth is increased by 21.17% during the three months following the division of MC into HMC and MII; this is in accordance with the fiduciary duty of management.
MVE goes from $1.603 billion to $1.942 billion.
Bondholder