Why is Marriott’s chief financial officer proposing Project Chariot?
In order to improve the financial condition of MC, then the CFO proposed restructuring the company under Project Chariot. This project involves splitting up the company into two separate entities, Marriott International Incorporated (MII) and Host Marriott Corporation (HMC). Due to the economic downturn and the Economic Recovery Tax Act, MC had failed to raise funds. This caused in large interest payments on property, which left Marriott Corporation with much debt. Under Project Chariot, MC would become two separate companies. MII would do MC's lodging, food, and facilities management businesses. HMC would retain MC's real estate holdings and its concessions on tollroads and in airports.
Under Project Chariot, MII and HMC would minimize debts and improve the financial health of the company after negative effects. For MII, this means that they would get little long-term debt from MC, while for HMC this project would mean that they would retain the most of the long-term debt from MC.
What do you favor as the fiduciary duty of management?
The management could either choose to execute the Project Chariot or they could stay the same structure and try to improve the financial condition of the company. So the duty of management is to make a decision about doing the Project Chariot or not.
The stockholders would gain from the financial change, since no cash would actually be transferred. As the lower security rating to show for it (from a BBB to a single B), the returns of the bondholders are now attached to a heavily indebted duty.
Therefore, the central issue is that bondholders' wealth was expropriated in favor of stockholders.
Implementation of Project Chariot will result in a loss to bondholders and a gain to shareholders.
| Loss or...
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