The dry nature of the material covered so far in the six days of testimony appeared to begin taking its toll on jurors yesterday. The value of the bonds would decline substantially and the bond holders would loose a lot of their investment. So all the risky investments are highly leveraged with bond holders exposed to the risk.
Thus the shareholders would gain at the expense of bond holders and the equity value of the company would increase. This meant that the risk was issued at investment grade but now was not backed by valuable assets of the companies which were to be spun off to MI which was to be backed by equity.
The new company would retain the service businesses of MC and have the financial strength to raise capital and take advantage of various investment opportunities. An economic downturn and the real estate crash resulted in MC owning newly developed hotel properties with no potential buyers in sight and a mound of debt.
We think that managers should not only consider the interests of shareholders but also the interests of bondholders, employees, and other related parties. Shareholder now have majority stake in a corporation with a lower probability of default while all the risk is transferred to debt holders.
MC was left with little choice, as they had to consider some major changes within the company if they wished to remain a successful business.
MC went into joint ventures by constructing hotels and selling them to the Equitable Life Insurance Society, which became a very profitable and powerful growth strategy. Hart conceded he had nicknamed Mr.
Although he knew of the division plan as early as May 7,Mr. And the bonds did come back in value. Asked if he was angry, he said, "Certainly. They can concentrate on core businesses thus improving efficiency and value.
Management is entrusted with the responsibility to increase shareholder value and their main focus should be on investing in projects that accomplish that task. Marriott appeared visibly annoyed with the proceeding.
Under Project Chariot, MC would split into two companies, creating a special stock dividend for existing MC shareholders. Let the dust settle" from the recent bond sale. MII would have very little long-term debt, which would give the company the ability to raise additional capital to help finance growth.
If the Project Chariot is implemented i. During the late s, MC had promised in their annual reports to sell off some of their hotel properties and reduce their burden of debt.
Marriott before he went before his board of directors with his ultimate recommendation. The existing company HMC would take on the newly developed properties and most of the existing debt.
Hart recalled suggesting, "We ought to wait. During the late s, MC had promised in their annual reports to sell off some of their hotel properties and reduce their burden of debt. This drastic restructuring proposal, deemed Project Chariot, had to be evaluated by J.
I thought what we had done was very fair," he said. Hence this appears to be a case of risk shifting.4 Drawing on the financial ratios in case exhibit 9 how much debt could from FINANCE BUFN at University of Maryland, College Park Drawing on the financial ratios in case exhibit 9, Why is Marriott’s chief financial officer proposing Project Chariot?
2. Indeed, Project Chariot, so named because it rhymes with Marriott, was designed to address Marriott's two major problems: its gigantic debt load and its backlog of unsold hotels and other real estate, both hangovers from its building binge of the s.
What: Under Project Chariot, Marriott Corporation (MC) would become two separate companies.
The new company, Marriott International Incorporated (MII), would consist of MC’s lodging, food, and facilities management businesses, as well as the management of its life-care facilities. In early May, five days after the last bonds were sold, Mr. Chichester's boss, Marriott Chief Financial Officer Stephen Bollenbach, proposed another spinoff, this time dubbed "Project Chariot.
Why is Marriott's chief financial officer proposing Project Chariot? What is your assessment of MC's financial condition? Is this project necessary for the company's survival?.
Thus, Marriott planned to review the company’s past financial history that led to their current position; evaluate Project Chariot’s advantages, disadvantages and value; determine the bond risk involved if Project Chariot was accepted and finally consider alternative recommendations/5(1).Download