Stephen F. Bollenbach, the mastermind of Marriott Corp.'s controversial split into healthy and debt-laden companies, angrily insisted yesterday that he hadn't misled bondholders about the division.
At the end of a key day of testimony in Baltimore's U.S. District Court, Mr. Bollenbach finally exploded at an attorney representing the bondholders, who have sued Marriott for securities fraud.
Eleven bondholders are charging that Marriott executives sold $400 million in bonds in late April 1992, while they already knew that they were going to divide the company and assign the bonds to the debt-laden successor, thus cutting their value.
Lawrence Kill, attorney for the bondholders, tried to point out the similarities between a memo Mr. Bollenbach wrote in March 1992 and the division plan announced in October of that year.
Mr. Bollenbach's normally florid face further reddened as he shouted "I'm not going to have [that] from you any more. They were two different things."
In the March 1992 memo, Mr. Bollenbach, who was then Marriott's chief financial officer, had told Marriott chairman J. W. "Bill" Marriott that he would try to "revise Marriott's story" and launch a "different approach to creating shareholder value" by -- the fall of 1992.
Mr. Kill then suggested that Marriott had rewarded Mr. Bollenbach for achieving the restructuring -- dividing Marriott into successor Host Marriott and spinning off a profitable hotel management company called Marriott International Inc. -- by giving him a $6.4 million bonus in late 1992.
But Mr. Bollenbach scoffed. "You think I got paid that money for changing the story of Marriott? I'm not Sidney Sheldon," he said, referring to a best-selling author.
Mr. Bollenbach, now chief executive officer of Host Marriott, said he received the money as a raise for taking his new job. On Tuesday, Mr. Marriott testified that the money was a bonus for completing the division of the company.
After Marriott announced the split and revealed that the bonds and about $3 billion in debt and depressed real estate would be assigned to Host Marriott, the price of the bonds plunged from about 110 percent of face value to 80 percent.
Since then the bonds have recovered to their face values while the stock price of the two companies has about doubled.
In developing "Project Chariot," as the division proposal was dubbed, Mr. Bollenbach said he made several changes to protect the bondholders and to make sure that Host Marriott would pay its interest and principal on time.
But, he conceded, he wasn't concerned about the bond's prices.
"Management's obligation is to create value for shareholders. Our obligation to bondholders is to pay the principal and interest when it comes due and abide by all the rules agreed to . . . The obligation of the company is certainly not to [push] the bond prices up."
Mr. Bollenbach said he first thought of the division idea on May 2, 1992, five days after the last of the $400 million in bonds were sold. He insisted his idea was not related to a division plan he had rejected in early April.
The Marriott executive said that during the same time period, he was working on a deal to sell 62 Marriott Courtyard hotels to Bass PLC for $1 billion. But Bass, which had bought the Holiday Inn hotel chain from the old Holiday Corp. for about $2 billion, balked at the price, he said.
Mr. Bollenbach had worked for Holiday and arranged for the sale to Bass in 1990.
If Marriott's sale to Bass had gone through, Mr. Bollenbach said, he probably would have spiked the division idea.