The resounding approval shareholders gave Marriott Corp.'s plan to split in two will have no effect on a group of bondholders' suit against the company, attorneys representing them said Friday.
"It was anticipated that shareholders would approve a transaction which was designed to benefit them," said Lawrence Kill, an attorney with Anderson Kill Olick & Oshinsky, who is representing PPM America Inc.'s bondholders in their suit against Marriott.
PPM America is the lead plaintiff in the suit, which was brought by holders of more than $100 million of Marriott Corp. bonds.
"It's not germane to the suit by bondholders," Kill said.
Some 85% of voting shareholders approved the plan to divide Marriott into two publicly traded companies through a special dividend transaction, Robert T. Souers, a Marriott spokesman, said.
Host Marriott Corp., a real estate company, would keep most of Marriott's debt. Host Marriott will own 139 hotels and 14 retirement communities. It will also run food, beverage, and merchandise concessions at airports and on toll roads. The other company, Marriott International Inc., would receive the company's lodging management and contract services businesses.
"We feel terrific," Souers said Friday. "We thought from the beginning that this was in the best interest of Marriott Corp. and its shareholders, and today our shareholders agreed with us."
Marriott's board of directors set a record date of Sept. 1 for the special dividend, and a distribution date of Sept. 10, a company press release says. The special dividend, however, hinges on certain conditions. Those conditions include a ruling from the Internal Revenue Service that the dividend will be tax-free.
Stockholders will receive one share of Marriott International for every Marriott Corp. common share they own. Marriott Corp. will become Host Marriott. Steven Cooper, also a partner at Anderson Kill Olick & Oshinsky, said the split is "certainly in the best interest of the Marriott family and [chief financial officer] Stephen F. Bollenbach, who own 25% of the stock and who would stand to make hundreds of millions of dollars on the deal."
Friday's approval was absolutely expected" given the Marriott family's and Bollenbach's stake and "how rich the deal is for stockholders," Cooper said. However, the plan is "patently unfair and illegal as it relates to the bondholders," he said.
Shortly after Marriott announced the split last October, the PPM bondholders filed a securities fraud suit in federal district court in Maryland. The suit alleges that Marriott failed to disclose that it was contemplating the restructuring when it issued $400 million of senior notes in April and May of 1992, and withheld information from the secondary market until as late as September.
Marriott Corp. shot back in May with the filing of a $110 million countersuit against PPM, alleging that PPM sought to interfere with its deals with its financial advisers and that it conspired to organize a group boycott of Marriott Hotels and other services.
Marriott has been more successful in negotiations with some of its other bondholders. In March, it worked out a settlement with four institutions who hold $400 million of the company's bonds. Those companies have never filed suit, Souers said.
Last week, Marriott released details of a proposed exchange offer for $1.525 billion of its public debt that is part of that agreement.
Also on Friday, Souers said the company's preferred stockholders who had filed suit had agreed for a "nominal payment" to end their litigation and convert their shares.
"Marriott is pleased with the settlement," Bollenbach said in a release. "It allows us to bring the litigation to a close and focus our attention on the timely completion of the special dividend." Those preferred holders represent more than 50% of Marriott's preferred stock.
In other news, the junk calendar for this week lists deals by ADT Operations, Royal Crown Cola, and Pan Am Sat L.P. totaling more than $1.2 billion, high-yield sources said.
ADT Operations is expected to offer $250 million of senior notes due 2000 and $350 million of senior subordinated notes due 2003 through Merrill Lynch & Co. The deal is linked to an equity offering.
Royal Crown Cola is expected to offer $250 million of senior notes due 2000 through Donaldson, Lufkin & Jenrette Securities Corp. and Merrill Lynch.
PanAmSat L.P. is expected to offer $175 million of senior notes due 2000 and $$260 million of senior subordinated discount notes due 2003 through Donaldson Lufkin. The offering is expected to arrive Wednesday. Price talk on the senior notes calls for a yield of 9 3/4% to 10%, while talk on the senior subordinated piece calls for an 11 1/4% to 11 1/2% yield.
In secondary trading, high-yield bonds ended 1/2 point lower, with supply pressures contributing to some of that weakness. Spreads on high-grade bonds were unchanged to slightly tighter as the government market moved lower. That market was down 5/8 in the long end.
Federal National Mortgage Association issued $200 million of 6.51% medium-term notes due 2003 at par. Noncallable for a year, the notes were priced to yield 61 basis points more than comparable Treasuries. Salomon Brothers Inc. sole-managed the offering.
Federal Home Loan Mortgage Corp. issued $100 million of 6.390% debentures due 2003 at par. Noncallable for three years, the debentures were priced to yield 50 basis points more than comparable Treasuries. Merrill Lynch managed the offering.
UNC Inc. issued $100 million of 9.125% senior notes due 2003 at par. Noncallable for five years, the bonds were rated B1 by Moody's and BB by Standard & Poor's Corp. First Boston Corp. lead-managed the offering.
Federal Home Loan Banks issued $50 million of 5.37% notes due 1998 at par. Noncallable for two years, the notes were priced to yield 13 basis points over comparable Treasuries. Smith Barney, Harris Upham & Co. sole-managed the offering.