Case Marriot and Flinder Valves

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Corporate Finance

Juan Carlos Ganme

Gerardo Fumagal

Osvaldo Gallegos

Cases: Marriott A and Flinder Valves

Case Marriott A

Questions to solve:

1. Why is Marriott’s CFO proposing the Project Chariot?

To improve the financial performance of the firm, by re-structuring the company in two separating activities to distinguish those that require a large fixed assets (Real estates ownership) and those with relative low amount of assets (Management services and others).

By dividing in this way, the large amount of debt will go with the real estates ownership called Host Marriott Corp. (HMC), whereas the rest of activities will go to Marriott International (MII). Doing so, the value of the 2 firms combined will exceed this year’s book value, according to expectations (see appendix 1).

2. Is the proposed restructuring consistent with management’s responsibilities?

It is, as it clearly separate the activities and focus on management services rather than owning the hotels. Furthermore, it improves the cash flows from the existing structure (see appendix 1), this improvement will allow HMC to meet its debt responsibilities ( a total cash flow projected of $771 million in 1992 versus $478 million in 1991.

The DCF in HMC assuming a worst case scenario will exceed current value of the firm’s assets $5,218 million versus $4,600 million, which indicates that the firm will improve as its assets will appreciate.

3. The case describes two conceptions of managers’ fiduciary duty (page 9). Which do you favor: the shareholder conception or the corporate conception? Does your stance make a difference in this case?

We agree upon favoring the shareholder conception, as this provides an improvement on cash flows, as this condition is met, other financial gaps can be covered, plus it revalues the total firm based upon the expected cash flows.

In this particular case, by having this...
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