Marriott chairman defends split


J. W. Marriott, chairman of the nation's biggest hotel chain, told a federal jury here yesterday that he knew the price of Marriott Corp.'s bonds would fall and its stock price would rise when the firm announced plans to split itself into two companies in October 1992.

But Mr. Marriott, who owns 4 percent of the company's stock and none of its bonds, said he and his management staff "bent over backwards" to protect the bondholders.

Marriott had not contemplated a division before it sold $400 million in bonds in April 1992, and was under no obligation to warn bondholders that a division plan was under consideration during the summer of that year, he testified.

Eleven bondholders have sued Marriott and its successor company, Host Marriott Corp., in Baltimore's U.S. District Court for securities fraud, charging the company sold bonds knowing that it was going to divide in two and assign the bonds to Host Marriott, the money-losing half of the split-up.

After Marriott announced that the bonds would be assigned to Host, which would assume about $3 billion in debt and hold depressed real estate and troubled airport concessions, the price of the bonds plunged from about 110 percent of face value to 80 percent.

While the bonds have recovered to their face values, the stock price -- tied to profitable hotel management spinoff Marriott International Inc. -- has soared, doubling in value.

Although he knew of the division plan as early as May 7, 1992, Mr. Marriott said he felt it would be improper to announce the idea to investors since he hadn't made up his mind whether to approve the plan.

"I had made no decision" until just a few days before the Oct. 5, 1992, announcement. "I was wrestling with trying to understand" the proposal, he said.

"If we disclosed everything we talked about we would issue a press release every day and the world wouldn't know what we were doing," he said.

Mr. Marriott said he remembered Chief Financial Officer Stephen Bollenbach telling him and other executives that the initial idea .. behind Project Chariot, as the division plan was known, was to "create shareholder value on the backs of the bondholders."

But, Mr. Marriott insisted, the plan changed to protect bondholders by making the remaining company more profitable.

"We bent over backwards in every way we knew how to make [the bondholders' half] a viable, strong company. And the bonds did come back in value. . . . We did everything we could to protect the bondholders . . . I thought what we had done was very fair," he said.

After about two hours on the stand, Mr. Marriott appeared visibly annoyed with the proceeding.

Asked if he was angry, he said, "Certainly. This is ridiculous. All the other bondholders have settled" and the bonds have rebounded to their original value, he said.

"I don't know why we are here," he said.

Earlier in the day, Marriott treasurer Matthew J. Hart said he recommended that Mr. Bollenbach wait before implementing the division plan.

Noting that Mr. Bollenbach suggested the idea about a week after selling $400 million in bonds, Mr. Hart recalled suggesting, "We ought to wait. Let the dust settle" from the recent bond sale.

But, Mr. Hart said, Mr. Bollenbach responded that since he had thought of the idea after the bond sale, he didn't see why he should wait.

Under questioning by the bondholders' lawyers, Mr. Hart conceded he had nicknamed Mr. Bollenbach's idea "Project Bhopal." Bhopal is a city in India that suffered one of the world's worst industrial disasters when a chemical plant blew up, killing thousands of workers and residents.

But Mr. Hart denied that he had picked the name because of the project's potentially devastating effect on bondholders.

The dry nature of the material covered so far in the six days of testimony appeared to begin taking its toll on jurors yesterday.

At 3:05 p.m. one young juror's eyes dimmed, and his head lolled on his shoulder. After a few minutes, an annoyed Senior Judge Alexander Harvey II, motioned to another juror to elbow the young man awake.

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