Marriott Corporation (A)
In 1927 J.W. Marriott Sr. founded the Marriott Corporation (MC) and during the 1980s experienced a huge growth. Marriott's main strategy in those days was developing hotel properties around the world and selling these properties to outside investors while retaining lucrative long-term management contracts. MC was a conservative company and it stressed the themes of careful attention on the details, the organization and its employees. Quality was the one of the highest priority set by the founder himself. In 1953 MC went public, selling one-third of its shares in its Initial Public Offering. Although they continued to sell public stock, the Marriott family always kept a 25% ownership over the business. J.W. Marriott Sr. resigned then in 1964, after having opened its first hotel in Washington eight years earlier. J.W. Marriott Jr., his son, took over from then and immediately abandoned his father's conservative financial policies.
In the '70s MC began to use bank credit and unsecured debt instead of mortgages to the finance development. In addition, MC had experienced two financial crises, which were due to dry up of limited partnerships in 1989, where MC experienced a sharp drop in income and the 1990 real estate market crash. This resulted in MC's stock price to fall by more than two-thirds, which means a drop of $2 billion in market capitalization. This was the first time investor-owned Marriott hotels went bankrupt.
This case deals with debt and its relevant actions to minimize debt and make the company financially healthy again, where analysis must be done to determine the potential financing opportunity and restructuring the corporation.
Due to the aforementioned economic downturn in the early '90s and the Tax Reform Act of 1986, MC had limited ability to raise funds. This resulted in large interest payments...