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Marriot Corp. Assignment 1. Vishal Sharma EPGP-14A-135

Project Chariot proposed separating Marriott Corp into two companies: Host Marriott Corporation (HMC) to own properties and Marriott International, Incorporated (MII) to manage operations. This would reduce debt, allow each company to focus on its business, and reassure shareholders by demonstrating commitment to long-term growth. While bond values may initially fall, HMC's credit rating and stock price were expected to improve over the long-run once the real estate market recovered. Yes, project Chariot was likely a matter of survival for Marriott in 1992 as it would relieve debt pressures and allow MII to raise capital and generate more profits.

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74 views6 pages

Marriot Corp. Assignment 1. Vishal Sharma EPGP-14A-135

Project Chariot proposed separating Marriott Corp into two companies: Host Marriott Corporation (HMC) to own properties and Marriott International, Incorporated (MII) to manage operations. This would reduce debt, allow each company to focus on its business, and reassure shareholders by demonstrating commitment to long-term growth. While bond values may initially fall, HMC's credit rating and stock price were expected to improve over the long-run once the real estate market recovered. Yes, project Chariot was likely a matter of survival for Marriott in 1992 as it would relieve debt pressures and allow MII to raise capital and generate more profits.

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Marriot Corp – Case Study

- Assignment 1
•Submitted by -

•Vishal Sharma
•EPGP- 14A- 135
1. Why is Marriott management proposing project Chariot? What is it trying to
accomplish?

- Project Chariot is a strategic decision of the company which would create two separate companies.
- Host Marriot Corporation – To oversee property ownership. Large fixed assets.
- Marriot International, Incorporated (MII) – To oversee management of operations. Low fixed assets.
- Long term aim is to reduce the debts and increase the profit.
- To Focus more and better manage company’s service business .
- To reassure shareholders and infuse confidence in the long term growth of the company.
2. What is the likely impact of project Chariot on the wealth position of the
shareholders?

- This change would allow stockholder of Marriot Corporation (MC), a share of stock in the
new company to match each share they held of MC.
- Stock price of MII will increase in short term, while the stock price of HMC is expected to
increase in longer term.
3. Should Management be concerned by the loss of market value of the bonds if
project Chariot is implemented?

- No, Even though HMC would takeover most of the debt and initially the stock price would
fall but in the longer run, the price of HMC will rise once the downturn in the real estate
market is over.
- Only short term concern is the the credit rating of HMC will take a beating in the short term.
4. Is project Chariot a matter of survival for Marriot in the fall of 1992? The Excel work book allows you to
estimate whether Marriot will be able to service its debt, given your assumptions about future profitability,
revenue growth, and property sales. Please see case Exhibit 6 for summary statistics on Marriott’s past
performance.

- Yes, project Chariot a matter of survival for Marriot in the fall of 1992.
- MII will have little long-term debts, they could raise more capital and generate more profits.
- This would also lift pressure off MC and create wealth for stockholders.
- If the project Chariot is not implemented the long term debts of the company will increase over a
period of time till the real estate downcycle is not over. Stockholder confidence will be less and
company will find it difficult to pay the interest for the equity raised.
- Yes, I would recommend the implementation of project Chariot.
- This is a way of capital restructuring.
- Both companies would be able to generate additional capital equity
funds. MII will have little long-term debts, they could raise more
capital and generate more profits.
5. Would you recommend the
- In the short term the credit rating of HMC may get downgraded
implementation of project Chariot?
but will improve once the real estate downturn is over.
- There will not be any conflict within the companies for the
allocation of funds.

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