Marriot Corporation Essay

2. Is the proposed restructuring consistent with managements responsibility? 3. The case describes two conceptions of managers fiducial duty (p. 9). Which do you favor the sh atomic number 18holder conception or the corporate conception? Does your stance open a difference in this case? 4. Should Mr. Marriott recommend the proposed restructuring to the carte? Marriott Corporation (A)1. Why is Marriotts heading financial officer proposing Project chariot? What is your assessment of MCs financial condition? Is this contrive necessary for the orders survival?. 2. Is Project Chariot consistent with managements responsibilities? To bondholders? To shareholders? To the state-supported? 3. The case describes two conceptions of managers fiduciary duty. Which do you favor the shareholder conception or the corporate conception? Does your stance make a difference in this case? 4. Should Mr. Marriott recommend the proposed restructuring to the board? 5. Who will be affected by Project Chari ot? Should MC make any concessions to the bondholders?Ans. 1Project Chariot involves a conflict of interest between the shareholders and the bondholders since in this case the debt universe held by Marriott Corporation (MC) is risky. Project Chariot aims to create MII with low debt and HMC with high debt. Thus bondholders will find that their investing gets tied to risky real realm assets whose appreciation is uncertain. Food management which is a major part of MC remains with MII. Thus Project Chariot aims to give shareholders the business upside and bondholders the real-estate downside. Hence this appears to be a case of risk shifting. Shareholders stand to pull while bondholders will lose if Project Chariot is implemented.Ans. 2This seems to be a case of Cashing out/Wealth Transfer where the overall wealth is being transferralred from the bond holders to the equity holders. The following points lead us to the direction of it being a wealthtransfer type of conflict * Chariot will result in a loss to bondholders and a gain to shareholders as the bonds will be downgraded by rating agencies and the returns of the bondholders will be attached to a intemperately indebted duty * Total Debt will last more risky, and bonds will be downgraded to below enthronization grade level* MC would be divided into two separate companies. MII would do MCs lodging, food, and facilities management businesses, whereas HMC would retain MCs real estate holdings and its concessions on toll roads and in airports, Hence bond holders will straight become a claim on only the payoffs of HMC and non MII. So, because of the above reasons Project Chariot seems like a case of Wealth Transfer conflict of interest.Ans. 3We believe in the broad view of manager responsibility. We think that managers should not only consider the interests of shareholders scarcely also the interests of bondholders, employees, and other related parties. This responsibility is even more important in the case of a B2C company like Marriott. If they get1. If the Project Chariot is implemented i.e. Marriott is divided into 2 companies Marriott International(MI) with the risk stop profit generating operating hotel and service business while the other Host Marriott(HM) a would own Marriotts hotel and undeveloped real estate businesses and other non service businesses, this will affect the following playersa) ShareholdersShareholder now have majority stake in a corporation with a lower probability of default while all the risk is transferred to debt holders. So all the risky investments are highly leveraged with bond holders overt to the risk. On the other hand MI back mainly by shareholders equity and performing assets and therefromly would be able to issue new debt increasing measure out for both shareholders and the corporation. Thus the shareholders would gain at the expense of bond holders and the equity value of the company would increase.b) BondholdersBondholders had a lot to lose as concord to Project Chariot almost all the debt would be assigned to HM. Given the problems in real estate and hotel markets there was a concern of HMs ability to meet its debt payment and there was a high probability of default. 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 value of the bonds would chasten substantially and the bond holders would loose a lot of their investment.c) Management(The Mariott brothers)The management gains from the spin off since it is able to hitch its tribulationed assets from the profit driving assets and there was a new company which was not under distress thus helping them retain their management positions and start from scratch. They can concentrate on core businesses thus improving efficiency and value. d) The value of the whole companyThe spin off does not create value for the company as a whole but only distributes theWhat Under Project Chariot, Marriott Corporation (MC) would become two separate companies. The new company, Marriott International Incorporated (MII), would consist of MCs lodging, food, and facilities management businesses, as well as the management of its life-care facilities. The existing company, renamed Host Marriott Corporation (HMC), would retain all MCs real estate holdings and its concessions on toll roads and airports. Why This project is being proposed because the economic meanwhile in the late 1980s and the 1990 real estate market crash left MC owning umteen newly developed properties for which there were no buyers, together with a massive burden of debt. The new company (MII) would have the financial strength to raise capital in order to take advantage of investment opportunities. The existing company (HMC) would take on the newly developed properties and most of the existing debt.HMC would be valued for the chance of appreciation in the property holdings when the real estate market recovered, not on the keister of earnings, thereby reducing the pressure to sell properties at depressed prices. 2- The fiduciary duty of management is to the shareholdersbecause they are more than creditors they are the actual owners of the firm. Management is entrusted with the responsibility to increase shareholder value and their main center on should be on investing in projects that accomplish that task. As stated in the case U.S. courts had held that corporations have no responsibilities to safeguard the interests of bondholders other than those spelled out by the terms of the bond indenture.3- I world-class looked at the initial market reaction the change resulting from October 2, 1992 (pre-announcement) through October 7, 1992 (post-announcement). I used October 7 for my initial market reaction because in 1992 many people may have still relied on newspapers for investment information. In addition, I assessed this narrow amount of time separately because widening the range of dates used to pass judgment the change in prices may allow other variables outside of Project Chariot to come into play. However, I also looked at a wider range of time October 2, 1992 (pre-announcement) through December 31, 1992. If you can reasonably wear thin no extraneous variables affected the prices during this time, widening the range of dates assessed can give an idea of the impact to prices after(prenominal) the initial market over/under-re