Marriott Corp. said yesterday that a favorable ruling from the Internal Revenue Service will allow the Bethesda lodging giant to proceed with its plan to split into two companies.
"It's pretty cut and dried," said company spokesman Nick Hill. "We're very pleased with the ruling."
The ruling certified that Marriott stockholders will not have to pay taxes on the shares of a new company, Marriott International Inc., that will be distributed as a special dividend. Shareholders will receive one share of Marriott International for each share of Marriott Corp. they own. The company's board of directors will meet today to vote on the distribution.
Barring a reversal by the board, the special dividend will be distributed Oct. 8 to shareholders of record as of Sept. 30.
Under the plan, announced last October, Marriott International will manage hotels that belong to other companies, a high-profit and low-risk business. It will manage about 750 hotels initially, plus 16 senior living facilities and 21 resorts. It will also run the existing company's contract food service business and other service businesses.
Ownership of Marriott's 136 company-owned hotels will be stay with the existing company, which will be renamed Host Marriott Corp. Host Marriott will also own the existing company's highway and airport rest area business, as well as about 12 senior living communities.
The plan sparked lawsuits from bondholders who contended that the transaction dumped most of the company's nearly $3 billion in debt onto Host Marriott while giving Marriott International most of the profits and growth potential.
Most of the bondholders who sued have settled the case in the U.S District Court in Baltimore, as has a group of owners of Marriott's preferred stock who sued in Delaware.
"It was really a transfer of wealth from bondholders to stockholders," said Mike Fineman, an analyst who follows Marriott for Alex. Brown Inc. "Management has done their best to ease the pain [for bondholders], but they're there for the shareholders, not the bondholders."
The main remaining lawsuit, brought by PPM America Inc., seeks money damages for the temporary 30 percent decline in the value of Marriott's bonds after the plan was announced. But PPM was not seeking an injunction that would stop the deal.
PPM contends, and Marriott denies, that the company hid its plans to split the company when it sold bonds to the public in April 1992.
The bonds rebounded after Marriott revised the plan to shore up Host Marriott's finances and because of the gains in the broader market pushed by the fall in interest rates.
In the meantime, the stock market has been enthusiastic about the deal, reasoning that separating Marriott International from Host Marriott's debt will allow Marriott International profits to grow faster than the existing company could. Marriott Corp. stock closed yesterday at $30.375, up 37.5 cents.