Marriott Corporation (Project Chariot) Case Analysis
GROUP A: ANA GABRIELA SOTILLO O!NSON "ABIAN "REI!ERR #ON ROSEN IMRE IGNACIO S$APAR% GIL&CASARES RA%AN RA%AN SEI" SE I" STE"AN RA'ISA#LE#IC #ERENA RIE'!ART %ANIS %ANIS ALEM
IE business School Section 4 September 2014 Question 1. h! is "#rriott m#n#$ement proposin$ Pro%ect &h#riot' h#t is tr!in$ to #ccomplish' #ccomplish'
One o the ain reasons or Project Chariot proposal is the collapse o prices in real estate ar*et+ A ,ecrease o ar*et prices lea,e, to loss an, -an*r.ptcy or a plenty o copetitors+ A,,itionally/ 0e sho.l, o.tline that ri1ht no0 it is 2ery ,i3c.lt to sell the property/ -eca.se o collapsin1 ar*et+ The copany 0ill try to sell the property 0hen the ar*et -ecoe ore sta-ili4e,+ The ain ai o the project is to split copany into to ne0 copanies+ One o the 0ill -e pro5ta-le/ -eca.se it 0ill represent -asically all the sectors o the hotel e6cept real estate an, lan, an, 0ill -e nae, Marriott International (MI)+ !o0e2er/ secon, copany 0ill incl.,e the real estates o the ol, copany an, -eca.se o the ajor contri-.tion o ,e-t is relate, to real estate an, lan,s it 0ill pay h.1e ao.nt o interests+ !ence/ this copany 0ill -e less pro5ta-le an, 0ill -e nae, !ost Marriott (!M)+ So/ 0hy is C"O o the copany proposin1 this project7 It is 0orth entionin1 that -eca.se o real estate ar*et prices ,ecreent the stoc*hol,ers o the copany ha, a noticea-le ao.nt o losses an, as a res.lt a-sence o pay-ac*s+ This project 0ill res.lt in ta6&ree ,i2i,en,s to sharehol,ers an, ,istri-.tion o ,i2i,en,s -y i,&899:+
Question 2. I( the propose) Pro%ect &h#riot is implemente)* ho+ )o !ou thin, this +ill #-ect the interests o(: #. b. c. ).
Sh#rehol)ers on)hol)ers "#n#$ement /the "#rriott brothers he 3#lue o( the +hole comp#n!
Ple#se* pro3i)e numeric#l estim#tions (or e3er! sub5uestion. The Project Chariot 0ill a;ect the ollo0in1 players<
#. Sh#rehol)ers: Sharehol,er no0 ha2e ajority sta*e in a corporation 0ith a lo0er pro-a-ility o ,ea.lt 0hile all the ris* is transerre, to ,e-t hol,ers+ So all the ris*y in2estents are hi1hly le2era1e, 0ith -on, hol,ers e6pose, to the ris*+ On the other han, MI -ac*e, ainly -y sharehol,ers e=.ity o >+? illion an, perorin1 assets o @+ -illion an, th.s ha2in1 less lon1&ter ,e-t (>+ illion)/ 0o.l, -e a-le to iss.e ne0 ,e-t increasin1 2al.e or -oth sharehol,ers an, the corporation+ Th.s the sharehol,ers 0o.l, 1ain at the e6pense o -on, hol,ers an, the e=.ity 2al.e o the copany 0o.l, increase+ As a proo/ the case presents the ,e-t&to&e=.ity percenta1e to -e :: or MI+
b. on)hol)ers: The ne0 project 0ill lea, to h.1e loss or -on,hol,ers+ The ajor reason or that is alost the 0hole ,e-t 0o.l, -e assi1ne, to !M+ ".rther/ 0e sho.l, o.tline that real estate ar*et an, hotel ar*et iss.es a*e pro-les or !M to -e a-le to co2er its ,e-t+ !ence/ there is a hi1h pro-a-ility o ,ea.lt+ 1 6 Pa1e
Since the ,e-t is not -ac*e, .p -y the 2al.a-le assets an, e=.ity in this copany the 2al.e o the -on, 0o.l, ,ecrease s.-stantial an, -on,hol,ers 0ill lose ajority o its in2estent+ As a proo or this/ 0e sho.l, o.tline that 899>&8998 the MC lon1&ter ,e-t is ran*e, as Baa: an, BBB -y Moo,yDs an, SP respecti2ely /E7hibit 1 8 2 + This eans that these are the lo0est& rate, -on,s that any in2estors are allo0e, -y la0 to in2est+ Accor,in1 to the case copany o0es to appro6iately : -illion in ,e-t/ 0hich has a hi1h pro-a-ility o 1oin1 ,ea.lt/ -eca.se o the reasons entione, a-o2e+ In a,,ition to this/ 0e 0o.l, li*e to .n,erline ,e-t&to&e=.ity percenta1e o !M/ 0hich is F+
c. "#n#$ement: The ain 1ain o ana1eent is the split o pro5ta-le an, .npro5ta-le assets+ This strate1y 0ill help the copany to concentrate on core -.sinesses o the hotel/ 0hich are ser2ice/ oo,/ etc+ Th.s/ tryin1 to ipro2e the e3ciency o the hotel+ The ipro2eent o the hotel 2al.e 0ill lea, to increase in eployees an, especially senior positions+ As a res.lt/ the losses o !M 0onDt o;set the 1ains o MI+
). he 9#lue o( the +hole comp#n! Accor,in1 to the i,ea o Project Chariot/ the 2al.e o the 0hole copany is not chan1e,+ The ain i,ea o the project is the ,istri-.tion o ,i2i,en,s+ The MI an, !M co-ine, 0ill ha2e the sae close to 4ero net incoe an, ina-ility to pay its ,e-t in the .t.re+ The ain pro-le o this project is that sharehol,ers ,istri-.te their ris*s to -on,hol,ers+ The copany as a 0hole 0ill ha2e the sae 1ain an, losses/ -.t the ,i;erence no0 is 0ho is 1oin1 to pay those losses an, 1et the 1ains+
Question . Is the propose) m#n#$ement;s responsibilities'
restructurin$
consistent
+ith
Ri1ht no0 the ain responsi-ilities o MI ana1eent are to ,e2elop -.siness an, a*e it ore pro5ta-le+ On the other han,/ !M ana1eent nee, to try to sell the hotels an, a*e all payents o the ,e-ts+ Accor,in1ly/ the ain i,ea o restr.ct.rin1 is to ,i;erentiate the -.siness into t0o parts in or,er not to o;set pro5ta-le asset 0ith .npro5ta-le one+ A,,itionally/ 0e sho.l, o.tline that MI has appro6iately ties ore estiate, eployees an, F ties ore estiate, operatin1 cash o0 than !M+ An, the tas*s o -oth ana1eent responsi-ilities are clear+ Thereore/ the ana1eent responsi-ilities are ali1ne, 0ith propose, restr.ct.rin1+
Question 4. I( !ou +ere # bo#r) member o( "#rriott* +oul) !ou #)3ise (or or #$#inst Pro%ect &h#riot /!ou m#! t#,e both le$#l* ethic#l* #n) economic #r$uments into #ccount' Beore ans0erin1 this =.estion/ 0e sho.l, ta*e into acco.nt all the a,2anta1es an, ,isa,2anta1es o the project+ As 0e alrea,y .n,erstoo, the project itsel has a h.1e a,2anta1es or sharehol,ers an, ana1eent+ On 2 6 Pa1e
the other han,/ -on,hol,ers are the ones 0ho ay -e the -i11est ris* ta*ers+ The project ,oesnDt incl.,e any line re1ar,in1 E2ent&ris* co2enants to protect -on,hol,ers ro le2era1e, -.y&o.ts (LBOs)+ This pro-le ay -rin1 -i1 iss.es -et0een -on,hol,ers an, the copany ana1eent/ since none o the >>illion ,ollars lon1&ter -on,s in 899@ ha, these con2ents+ As a res.lt copany i1ht ace a co.ple la0s.its/ 0hich 0ill pro-a-ly ,ecrease its pop.larity an, stoc* prices an, -rin1 a,,itional pro-les+ Thereore/ 0hen a*in1 ,ecision the copany sho.l, pro2i,e -on,hol,ers soe *in, o ins.rance in case o ,ea.lt+ This 0e ,ee/ is the -i11est iss.e o this project+ The -ene5ts are that it can help ana1e the copanies ore appropriately/ -eca.se it has a ,i2ision o a ser2ice an, a property+ !ence/ as a -oar, e-er I 0ill try to sol2e all the le1al iss.es an, only ater their sol.tion a,2ise or Project Chariot+
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E7hibit 1: "#rriot
E7hibit 2: en>e#r ?in#nci#l Summ#r!
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