Had Marriott executives already been planning to split the company into two pieces last spring when it sold investors $400 million in bonds?
Yes, allege two local investors who filed a class action suit against the Bethesda-based company and its top executives yesterday in U.S. District Court in Baltimore.
The suit, which asks the court to rescind the bond offering and order Marriott to refund investors their money, charges that Marriott made "misleading" statements to investors in the offering documents for the bonds, which were sold in April and May of this year for general corporate purposes.
"The investors are very unhappy and feel that this [breakup] plan should have been disclosed to them. If it had been, they never would have bought the bonds," said Daniel Krasner, a New York attorney and co-counsel for the plaintiffs. He noted that in the wake of Marriott's announcement that it would split into two companies, the Baltimore investors immediately lost about 30 percent of the value of their bonds.
One plaintiff in the case is Moges Gebremarian, a Baltimore physician who purchased $25,000 worth of notes issued by Marriott on May 8 for his profit-sharing plan.
The other plaintiff is Harvey Levy of Baltimore, a trustee for National Rubber Footware Inc., who purchased $25,000 worth of notes issued by Marriott on April 23 for the retirement plan.
Specifically, the plaintiffs charge in their suit that Marriott failed to disclose to bond investors that it intended to break into two companies next year, a plan that it announced on Oct. 5.
Under the plan, a new company would be created that would be known as Marriott International, which would be virtually debt-free. At the same time, the old company -- to be renamed Host Marriott Corp. -- would hold $2.9 million in debt.
Marriott's disclosure of the plan caused the New York bond rating agencies to lower the ratings on the company's bonds.
Two other similar suits by debt holders were filed in federal court in Baltimore earlier this month. The plaintiffs in those cases, also brought as class actions, likewise allege that Marriott misled them and other debt holders by selling bonds without disclosing its plan to split itself into two companies. The plaintiffs in those cases are Edmund Tomlinson, a Pittsburgh investor, and a profit-sharing trust called United Apple Sales Inc.
"This breakup plan was a long time in its gestation period, and we believe that at least as of the time of the bond offerings, this plan was being considered," said Mr. Krasner, who represents the Baltimore investors.
Besides the Marriott chairman, defendants in the suit brought by the Baltimore investors included Richard E. Marriott, the vice chairman, and Stephen F. Bollenbach, the chief financial officer.