REV: SEPTEMBER 24, 2002
LYNN SHARP PAINE
Marriott Corporation (A)
Over the next few years we will place special emphasis on enhancing our strong customer preference, increasing operating cash flow and reducing debt.
— Chairman’s letter to shareholders, Marriott Corporation 1990 Annual Report, p. 3 Priorities for the next few years: Reduce our long-term debt to about $2 billion by the end of 1994, by maximizing cash flow and selling assets.
— Chairman’s letter to shareholders, Marriott Corporation 1991 Annual Report, p. 5 [Third in a list of four priorities.]
J.W. Marriott, Jr., chairman of the board and president of Marriott Corporation (MC), had weathered difficult times in the last few years. The company his father had founded in 1927 had grown explosively during the 1980s, developing hotel properties around the world and selling them to outside investors while retaining lucrative long-term management contracts. However, 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. As Marriott had promised in successive annual reports over the last few years, the company was working to sell properties and reduce that burden, but progress was slow. Looking ahead to the end of 1992, three months away, financial results promised to be only slightly better than for 1991, although still a significant improvement over the low point reached in 1990. For the foreseeable future, MC’s ability to raise funds in the capital markets would be severely limited. But Marriott now faced a decision that had the potential to change this situation completely. He was considering a radical restructuring of the company proposed by Stephen Bollenbach, the new chief financial officer, under which the bulk of MC’s service businesses would be split off from its property holdings—and debt. A new company would be created for the service businesses, with existing shareowners of MC receiving a share of stock in the new company to match each share they owned in the old one. The new company would have the financial strength to raise capital to take advantage of investment opportunities. The old one, valued for the chance of appreciation in its property holdings when the real estate market recovered, and not on the basis of earnings, would be under less pressure to sell properties at depressed prices.
Bollenbach had served as treasurer of MC in the early 1980s at the beginning of its period of rapid growth. After leaving in the middle of the decade, he had built a reputation for creating innovative financial structures in the hotel industry with the 1987 recapitalization of Holiday Corporation (later named Promus Companies, Inc.), and then with his rescue of Donald Trump’s heavily indebted real ________________________________________________________________________________________________________________ Professor Lynn Sharp Paine and Research Associate Charles A. Nichols III prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
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Marriott Corporation (A)
estate holdings. Bollenbach returned to MC as CFO in February 1992. His proposed restructuring, called “Project Chariot,” reflected the imaginative and innovative thinking characteristic...
Cited: 17E. Merrick Dodd, Jr., “For Whom are Corporate Managers Trustees?” Harvard Law Review, XLV, No. 7 (May 8, 1932), pp.
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