Marriott's TS third-quarter loss

[dima]

Marriott International Inc., the largest publicly traded U.S. hotel chain, had a third-quarter loss after recording costs related to a timeshare business it’s planning to spin off.

The net loss was $179 million, or 52 cents a share, compared with a profit of $83 million, or 22 cents, a year earlier, the Bethesda, Maryland-based company said yesterday in a statement. Analysts expected earnings of 28 cents a share, the average of 14 estimates in a Bloomberg survey.

Results included $324 million of pretax impairment costs at Marriott’s timeshare business, hurt by a slump in demand as economic growth slows. The company said in February that it would separate the unit later this year to concentrate on operating properties.

“The spinoff of our timeshare business is on track,” J.W. Marriott Jr., the company’s chairman and chief executive officer, said in the statement. It’s scheduled for completion by the end of the year, he said.

Earnings before a pretax charge of $352 million, which includes the impairment related to the timeshare segment, beat estimates. Adjusted earnings were $104 million, or 29 cents a share. On that basis, analysts expected a profit of 27 cents, the average of 23 estimates compiled by Bloomberg.

Marriott’s revenue rose to $2.87 billion in the third quarter from $2.65 billion a year earlier.

 

[Cobra1950]

Bigger question here is in what pending likely future losses were transferred to the new division that have not yet been recognized as losses? That seems to be the practice when spin offs occur anymore, getting rid of potential liabilities that may occur going forward from the "parent"??

 

[kjd]

This raises a question about the value of the spinoff's stock price. Current MAR shareholders will receive shares of the spinoff. In some cases the share value of the spinoff rises after the seperation. This doesn't seem like one of them.

I believe that MAR shareholders will try to sell their spinco shares unless Marriott can show that the spinco can make it on its' own. That's probably the reason for some of these write-downs while they're still on MAR's books. It will be interesting to see what happens to the value of the spinco's shares.

After a period of time on their own there have been spinoffs that have failed. MAR wouldn't be interested in throwing good money after bad to bail out the spinco. More likely, the spinoff would be bought by someone else who will change the rules of the game once again. Should that happen it would seem that legacy owners would be in a better position than strictly point owners because legacy owners have a deed. Let's hope that things don't come to that.

 

[EKniager]

Spin offs are usually about raising capital, uncoupling value centers, and limiting liability. Does anyone know what percentage of shares will be available and what percentage of spinco Marriott will continue to own?

 

[windje2000]

Bigger question here is in what pending likely future losses were transferred to the new division that have not yet been recognized as losses? That seems to be the practice when spin offs occur anymore, getting rid of potential liabilities that may occur going forward from the "parent"??

It is in MAR's interest to get the values correct and NOT create a loser in SPINCO.

If the SPINCO is insolvent (defined as liabilities in excess of assets and/or an inability to satisfy scheduled indebtedness) the spin transaction would be characterized as a 'fraudulent conveyance' and undone and MAR would continue to be on the hook for its problems. That's exactly what they don't want.

It is also in SPINCO management's interest to get the values in the transaction right. Management certainly will be receiving incentive based compensation based on equity value.

Just like a new broom sweeps clean, no one ever takes over a balance sheet and P&L they have not swept as clean as possible, ridding themselves of past problems.

Weicsz and company will NOT want to start out their at-bat with the equivalent of a two strike count and a high fastball on the way.

 

[windje2000]

Spin offs are usually about raising capital, uncoupling value centers, and limiting liability. Does anyone know what percentage of shares will be available and what percentage of spinco Marriott will continue to own?

The spin transaction involves issuing SPINCO shares to stockholders. The moment after the transaction takes place, each stockholder has two shares (MAR and VAC) representing what once was MAR.

Marriott the corporation will have no equity ownership in VAC.

The Marriott family will own just over 20% (IIRC) of VAC since that is what they own in MAR.