...In January 1980, the management of the Marriott Corporation found itself in an interesting dilemma: not only did the corporation have considerable excess debt capacity, but projections of future operations and cash flows indicated that this capacity was on the rise. For Marriott, excess debt capacity was viewed as comparable to unused plant capacity because the existing equity base could support additional productive assets. Management was therefore faced with two problems. First, it needed to determine the amount of funds that would be available if Marriott's full debt capacity were utilized. Second, management needed to decide whether to invest excess funds in new or existing businesses, or to return them to the companies shareholders by paying higher cash dividends or repurchasing stock. To resolve the first issue, it is recommended that the Marriott corporation calculates several coverage ratios so that it can evaluate it's ability to cover the costs associated with varying levels of debt. There are three coverage ratios, corresponding to the costs associated with increased debt leverage, recommended by Higgins n his book. These ratios are times interest covered, times burden covered, and times common covered. To calculate these ratios EBIT is divided by a specific cost, or sum of costs, to determine how well profits are able to support them. Alternatively, “percentage EBIT can fall” could be calculated with regards to each type of cost, to determine the percentage amount...
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...9-282-042 Rev. September 15, 1986 Marriott Corporation The idea of repurchasing shares was no stranger to Bill Marriott by January 1980. Almost five million shares of common stock had been repurchased on the open market by Marriott Corporation during 1979 at a total cost of $74 million and an average price of $15.16 in the belief that they were undervalued—a belief that still was not fully reflected in the market price. At $19 5/8, the stock was selling at only six times cash flow per share; and its price/earnings ratio of nine was a far cry from historical multiples as high as fifty times as recently as 1973. Its low price seemed to offer once again an obvious opportunity to benefit shareholders. However, the proposal to repurchase 10 million of the 32 million still outstanding shares aroused some uneasiness. If successful, it had the potential of enhancing Marriott's EPS and of increasing family and management control from 20% to 29% of outstanding shares. However, it represented a move that was almost entirely financial—one that would run the debt well above the levels advocated before the Board of Directors only two years earlier. The repurchase would also necessitate renegotiation of restrictive covenants in existing loan agreements. Lastly, the huge size of the proposed program would require a tender price of $23 1/2, a hefty premium of $4 over the current market price. All of this seemed somewhat out of character for a corporation known for caution and stability...
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...Feldt v. Marriott Corporation 322 A.2d 913 (D.C. 1974) According to the case study titled “Feldt v. Marriott Corporation,” the appellant entered the appellee’s restaurant barefoot but was not asked to leave until after purchasing and receiving her food. The appellee asked the appellant to leave several times but she refused to leave the facility until she had finished her meal. After several refusals and one inappropriate comment made by the appellant, the appellee asked a police officer to escort the troubled woman off the premises. While guiding her towards the exit, the appellant struck the police officer, therefore, causing more ruckus. Upon being arrested and spending one night in the Women’s Detention Center, the appellant was released on her personal recognizance and ordered to court the following day, where she was free to leave after being dropped of any charges. The study provides a great expectation of what happens on a regular basis in the hospitality industry. Because customers are always “guests” and help make the industry thrive, they often feel as though they can do whatever they would like—simply because they paid for a facility’s services. Although we are taught by our employers, fellow employees, and professors that “the customer is always right,” that is not always the case. The appellate in “Feldt v. Marriott Corporation” may have been freed from any charges but she was certainly not innocent, nor was the appellee. While the appellant proved...
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...HEC Lausanne Corporate Finance Case 3: Marriott Corporation (A) Spring Semester 1. Project Chariot is proposed by MC’s CFO, Stephen Bollenbach, to face the troubles that Marriott Corporation (MC) is currently facing. A glimpse of history is useful to understand the current situation. MC’s main business is to develop hotel properties, to sell them to outside investors and to conclude long-term contracts. In the 70’s MC began to finance its expansion by major borrowings under the impulsion of the new president J.W Marriott, Jr. that abandoned the conservative financing policy of its predecessor (and father). In 1981 the Economy Recovery Tax Act (ERTA) gave enormous incentives for companies to invest (tax write-offs were given for each $ invested in real estate). This pushed MC to develop even more its activities for instance in lodging services or in full service compact hotel. Even though ERTA was ended in 1986 MC continued its massive investments, which lead to a significant accumulation of debt. This was not an issue since the revenue growth was able to sustain the also growing interest payments. Until the drop of income in 1989, which froze capital expenditures. Unfortunately for MC, it was followed by the real estate collapse in 1990 that left MC with massive interest payments for properties that no one wanted to buy anymore given the current economic environment. This situation results in an extremely limited ability for MC to raise funds in the capital market...
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...Marriot case Analysis Lodging Division 1) Finding beta for Lodging: The nearest business that could be considered for calculating the beta is the Holiday Inn Corporation which has a beta of 1.35. In order to unlevered the beta of Holiday Inn Corp using; 1.35/(1+(1-t)*D/E); where t is the tax rate; D/E is debt to equity ratio. Therefore; 1.35/(1+0.56(0.74/0.26)) The unlevered Beta for Lodging is 0.435 which is approx. to 0.44. We can use the Holiday Inn Corp’s unlevered beta as an estimate for Lodging business unlevered beta. Therefore; levered beta of lodging will be, 0.44 (1+(1-t)D/E) =0.44(1+ 0.56(0.74/0.26)) =1.128 2) Finding cost of debt for lodging business; = long term government bond + risk premium =8.95 % + 1.10 % = 10.05% 3) Finding cost of equity of the lodging division; Re=Rf + (Rpm)*beta =8.95% + (7.43%) * 1.128 = 17.33% Using spread of S&P 500 and Govt. bond as the premium. 4) WACC for the lodging division; =0.74 * (10.05%) + 0.26 (17.33%) = 11.94% Restaurants Division 1) Finding beta The more comparable business in restaurants industry to the restaurants division of Marriot is Wendy’s International, where levered beta is 1.32. Converting it into unlevered beta; 1.32/(1+0.56(0.21/.79)) =1.1489 We can use the unlevered beta of Wendy’s International as our estimate of unlevered beta for the Restaurant’s division. To find the levered restaurants division beta; 1.1489 (1+0.56(.42/.58)) =1.61 2)...
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...1) What is the WACC for Marriott Corporation? What type of investments would you value using Marriott’s WACC? (Note: the WACC formula is on page 398 of the textbook. You might want to answer these questions on your way to WACC: a. What risk-free rate and risk premium did you use to calculate the cost of equity? The risk free rate used was a weighted average of the short-term treasury bills and long-term bond rates found in Exhibit 4. Using a weighted average based off the amount of revenue for each of the three divisions, long-term bond rate of 4.58% was used for the lodging, while the short-term Treasury bill rate of 3.54% was used for the contract services and restaurants. For the risk premium, a similar approach was used, using a weighted average from the spread rates found in Exhibit 5. The risk-free rate ended up with a blended average of 3.97% and a risk premium of 8.04%. b. How did you measure Marriott’s cost of debt? After calculating the risk-free rate and premium for Marriott as a whole, the beta of 1.11 found in exhibit 3 was used to calculate the cost of equity, which was calculated to be 12.89%. The cost of debt was then calculated by determining the proper government rate and debt rate premium. For the government rate, a weighted blended average was again used. The 30-year government interest rate was used for the lodging division, while an estimate of 7.5% (rate in between the 1-year and 10-year rate) was used for the contract services and restaurant...
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...Dan Cohrs, vice president of finance at the Marriott Corporation has to prepare his annual recommendations for the hurdle rates for the firm’s three major lines of business – lodging, contract services and restaurants. He recognizes that the hurdle rates are going to have a significant impact on the firm’s financial and operational strategies. If hurdle rates increased, Marriott’s growth would be reduced as once profitable projects wouldn’t remain so. While on the other hand, decease in hurdle rates would accelerate the firm’s growth trajectory. So it is very important for Dan to make appropriate recommendations for the divisional hurdle rates as this could influence project investment decisions to a great extent. When determining the appropriate discount rate for a project, firm should understand that what investors care about is if the project earns a higher return than it could earn elsewhere on an investment with similar risk level. The appropriate beta should be considered for a particular project and not of the entire firm because different projects in a firm can have different betas as they represent different levels of investment with different risks. Once you have the project you can use the CAPM equation to calculate the cost of equity rE as: rE = rf + *(rm - rf) where rf – risk free rate and (rm - rf) – risk premium Once cost of equity is calculated, weighted average cost of capital can be calculated as below: WACC = (1-T)*(D/D+E)*rD + rE * (D/D+E) where...
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...------------------------------------------------- Abstract: The case examines Marriott International's (Marriott) various innovative HR practices, which earned it the reputation of being 'the best place to work' in the hospitality industry. It describes Marriott's 'Spirit to Serve' culture and the company's HR philosophy which guided its various HR initiatives. The case gives an overview of the best practices employed by the company in the recruitment, selection, training and development of employees. It also details the employee retention strategies and grievance redressal system at Marriott. Finally, the case reviews the benefits reaped by the company because of its employee friendly HR practices. | | ------------------------------------------------- Issues: » Understand the role of an organizational philosophy and culture in the development of human resource policies in a multinational organization » Get insights into the HR best practices of a large global service organization » Understand the role of employee development programs for retaining employees and improving organizational productivity » Appreciate the benefits that accrue to an organization through the use of employee-friendly policies ------------------------------------------------- The Spirit to Serve Once, when a customer checked in at an Anaheim Marriott hotel, she was in a very disturbed state of mind. It was on her way to the hotel that she learnt of her sister's death. The worst part...
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...Marriott Corporation: The Cost of Capital Executive Summary J. Willard Marriott started Marriott Corporation in 1927 with a root beer stand, expanding it into a leading lodging and food service company with sales of over $6 billion by 1987. At the time, Marriott had three main lines of business, lodging, contract services and restaurants, with lodging generating about 51% of company’s profits. The four key elements of Marriott’s financial strategy were managing hotel assets rather than owning, investing in projects with the goal of increasing shareholder value, optimizing the use of debt, and repurchasing their undervalued shares. Marriott Corporation relied on measuring the opportunity cost of capital for investments by utilizing the concept of Weighted Average Cost of Capital (WACC). In April 1988, VP of project finance, Dan Cohrs suggested that the divisional hurdle rates at the company would have a key impact on their future financial and operating strategies. Marriott intended to continue its growth at a fast pace by relying on the best opportunities arising from their lodging, contract services and restaurants lines of businesses. To make the company managers more involved in its financial strategies, Marriott also considered using the hurdle rates for determining the incentive compensations. What is the weighted average cost of capital (WACC) for Marriott Corporation? WACC = (1 - τ)rD(D/V) + rE(E/V) D = market value of debt E = market value of equity V...
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...Executive Summary Marriott International envisions itself to be the world’s lodging leader. Its mission is to provide the best possible lodging services experience to customers who vary in backgrounds, language, tradition, religion and cultures all around the world. Marriot is committed to environmental preservation through using environment-friendly technology and engages in social responsibility and community engagement. We value our shareholder’s so we will only take steps that will ensure our growth. Most importantly, through our “spirit to serve”, we emphasize the importance of Marriott’s people and recognize the value they bring to the organization’s growth and success. It aims to increase revenues by 9% every year, to increase profits by 5% annually, to gain brand loyalty from their international customers, and lastly, to increase their market share in the lodging industry by 3% within 3 years. Marriott International is ranked as number one in market capitalization and revenues in the lodging industry. In fact, it has been ranked by Fortune as among the “100 Best Companies to Work For.” It has a total of six business segments in its portfolio, namely: the North American Full-Service Lodging Segment, North American Limited Service Lodging Segment, International Lodging Segment, Luxury Segment, Timeshare Segment, and the Synthetic Fuel Segment. It has a deep history, which started way back to 1927 when J. Willard Marriott and his bride opened a 9-seat root beer stand...
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...J.Willard Marriott, who had moved away with his business partner Hugh Colton and his wife Alice from Utah to Washington, D.C., started the brand new startup company in 1927, when he operated a curbside food stands selling A&W Root Beer in the Columbia Heights neighborhood of Washington at 14th Street and Park Road NW. He would later rename the food stand The Hot Shoppe, adding Mexican food items to the menu.[2][3] Marriott's business expanded to Baltimore, Maryland, in 1934, shortly after which the company started its food services division. During Second World War, the business expanded to include the management of food services in defense plants and government buildings, such as the U.S. Treasury. Then in the 1950s, Hot Shoppes, Inc. started providing food services to public schools and to Children's Hospital in 1955, a contract which they held for 35 years. Marriott's restaurant chain grew, and the company went public in 1953. In 1957, he expanded his business to hotels, opening the first Marriott hotel—actually a motel, the Twin Bridges Motor Hotel—in Arlington County, Virginia. The company became Marriott, Inc., in 1967. Two large chains were added to the group, the Big Boy family restaurants in 1967 and Roy Rogers Family Restaurants in 1968. Over the years, Marriott's company interests expanded. Continuing with food services, Marriott eventually invented airline in-flight food service. This segment of their enterprise continues to be a large part of their business, providing...
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...answer the questions revolving around the Project Chariot, the Spin-off that allowed Marriott to separate its business activities in its world famous hotel management business and a separate real estate business in 1994. This project involves the splitting up the company into two separate entities, Marriott International Incorporated (MI) and Host Marriott Corporation (HM) in order to minimize the debt burden and improve the financial health of the company after severe effects from real estate market crash and the slowdown in the business in early nineties. The description of Marriott Corporation, key issues faced by the corporation, details about the proposed Project Chariot and the alternatives and consequences of implementing Project Chariot is reported in the following sections. 1) The first analysis is the impact assessment for the parties and stakeholders of Marriott: According to the reorganization plan MI would operate hotels and include Marriott’s service businesses. It would also own Marriott’s trademarks, trade names, reservation and franchise systems. HM would own Marriott’s hotel properties and undeveloped real estate. It would also operate food, beverage, and merchandise concession in airports and toll-road rest areas. Impact Assessment for: a) Shareholders: the project would give each shareholder one share of the new Marriott International Inc. (MI) for each share of Marriott, so since no cash would be exchanged/transferred. It would have the beneficial effect...
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...экономики и финансов фирмы Домашнее задание №8 По курсу «Корпоративные финансы-2» Кейс на тему «Анализ дивидендной политики компании «Mariott» Выполнили студенты: Группа 1 Абдухамидов Антон Гусамов Степан Данилова Екатерина Жегусов Владимир Исайчев Дмитрий Козловская Анна Москва 2011 Цель работы: Проанализировать решение компании по выкупу акций Задачи: * Дать описание компании и ее положения на рынке * Обосновать решение компании на основе теории * Провести практический анализ решений компании * Сделать выводы по проделанной работе Постановка проблемы Компания “Marriott” считает, что ее акций существенно недооценены (на рынке торгуются по цене $19,625). В связи с этим компания планирует выкупить 10 млн. акций (из 32 млн. выпущенных). Однако, выкупать акции планирует по цене на $4 выше текущей рыночной. Описание компании Marriott Corporation была основа в 1927 году. Изначально, компания специализировалась на ресторанном бизнесе и предоставляла контрактные услуги по обеспечению питанием на самолетах. В начале 40-х годов компания начинает предоставлять услуги в сфере гостиничного бизнеса. Гостиничный бизнес (35% выручки): компания распоряжается 23,000 комнат в 55 отелях, расположенных, в основном, в США. 70% комнат принадлежат внешним инвесторам и управляются компанией на основе 70-летних соглашений. Контрактное питание (32% выручки): компания предоставляет услуги широкому спектру клиентов. Ресторанный бизнес (25% выручки): компания владеет...
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...Christina Rodriguez Marriott versus Howard Johnson We know Marriott Corporation today as one of the leaders in hotels and hospitality. Having previously worked for the company, I have personal knowledge of and experience with the core values Marriott emphasizes. J. Willard Marriott Sr. founded his corporation on the idea that the service business is rewarding and makes a big contribution to society. Marriott initiated elaborate employee screening an indoctrination processes to reinforce the ideology of employees as number one and customers as guests and created management development programs to ensure the continued availability of “Marriott-type” management. He also passed these values down to a successor that continued to insist that the company’s motivating factor was not money, but rather the sense of pride and accomplishment that comes from doing work really well” (Morris, 1971). Having parents who are business owners, I am a complete believer in that by taking excellent care of employees and providing outstanding customer value, good shareholder returns will inevitably follow. Howard Johnson also had an ideology that emphasized consistency and quality; however, he had no successor that he passed this along to. Upon research for a previous job I had working for a big hotel chain, I could find no indication that there was any ideological coaching within the company to instill ideas and principles. In the 70’s, Howard Johnson Jr. was running the company with a strictly...
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...“J. Willard Marriott began his dream in 1927 with a nine stool root beer stand. His goal was to build a successful business and a brand that is guided by strong values.” Marriott International, Inc. (1996 – 2014). Now almost 90 years later, Marriott is a leading hotel chain operating in 70 countries, with over 4000 properties. Strategic planning, community involvement, responsible business principles, and environmental awareness are the characteristics that have made Marriott successful. Analyzing our personal and workplace values will help explain how these coincide with our actions and behaviors. This will also help to analyze the alignment between our values in comparison to the values and behaviors of Marriott. Last this process will help show if the values and behaviors of Marriott are expressed in the plans and actions of the organization. The values learned from my parents are solely responsible for my current personal values; but not completely. Values are absorbed by the core consciousness of a person, and are modified by the physical environment these influences include school, friends, society’s beliefs, but the core remains the same spiritual self. I have been provided with a Christian influence that I thank god for daily. Through sports I learned team work as well as individual responsibility, while my brother taught me the fun of competition. Over the last three decades I have not observed a difference between my personal and workplace values. I have listed...
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