Spinoffs and Wealth Transfers: The Mariott Case

Abstract

This paper examines changes in bondholder and shareholder wealth resulting from the 1993 Marriott spinoff. The evidence indicates that there was a wealth transfer from the bondholders to the shareholders and that the total value of the firm declined immediately following the spinoff announcement. The aggregate value of Marriott's equity increased $232 million while the value of its public notes and debentures decreased $333 million. Subsequent modifications of the spinoff plan reduced the bondholder loss, but the value of the debt remained $185 million below its pre-anouncement level when the distribution was completed. It is unclear whether the shareholders ultimately benefited from the spinoff.

JEL Classification: G34