Question

October 1993 Marriott Corporation announced
plans to divide its operations into two separate
businesses (spin off of hotel mgt’ business)

– Marriott International: manage Marriott’s hotel chain and receive most of the revenue

– Host Marriott: own all the company’s real estate and be responsible for servicing essentially all of the old company’s $3 billion of debt

What will happen to Marriott’s stock price and
bond price after this announcement?

Answer 1

STOCK PRICE -

it will go up since the companyhas made a clear distinction between a bad unit and a good unit the shareholders will now be able the sharesof the units which is debt free and produces most of the revenue . all of the major revenue of the company comes from marriott's supply chain therefore they receive most revenue from there only , more revenue means more retained earnings available to shareholders as compared to other firm that has debt attached to it and do not have considerable business therefore STOCK PRICES SHOULD GO UP

BOND PRICE

Since there clear distinction has made been the unit for debt and equity bondholders need to worry for interest obligation the other organisation is dealing with real estate and it is expected that real estate business will not be doing great for many years to come therefore revenue generation possibilities are less there and primary purpose of the company would be to pay debt and hardlt anything will be left thereafter therefore it is clear that company wants to cater deb and equity differently through different ways which should help equity and cause of concern for debtholders

therefore BOND PRICES SHOULD GO DOWN

PLEASE APPRECIATE THE WORK