The Spin­off

Un­der a plan an­nounced Mon­day, Mar­riott In­ter­na­tional will spin off its time­share busi­ness to its ex­ist­ing share­hold­ers. The deal, which is ex­pected to hap­pen by the end of the year, has the po­ten­tial to cre­ate one of the world's largest stand­alone time­share busi­nesses, with around 71 prop­er­ties, 33,000 rooms, 400,000 own­ers and $1.5 bil­lion in un­sold as­sets. On Mon­day, Mar­riott re­ported that its time­share busi­ness had $1.2 bil­lion in rev­enue in 2010, roughly 10 per­cent of the com­pany's to­tal rev­enue.

In a YouTube post, Bill Mar­riott called the deal a "win-win" that would:

•al­low faster growth in the time­share op­er­a­tions un­der both the Mar­riott and Ritz-Carl­ton names;

•re­sult in no changes in the brand­ing or qual­ity of the prop­er­ties, ser­vices, us­age op­tions, use of Mar­riott Re­wards points, or ac­cess to Mar­riott In­ter­na­tional’s ho­tels;

•be led by Stephen Weisz and William Shaw as CEO and Chair­man, re­spec­tively. Weisz has been pres­i­dent of Mar­riott’s time­share busi­ness since 1997 and is a 39-year Mar­riott vet­eran. Shaw had been vice chair­man of the com­pany.

The Mar­riott fam­ily will main­tain a 21 per­cent own­er­ship in both com­pa­nies. The deal will re­port­edly not re­quire share­holder ap­proval, but is sub­ject to some ba­sic con­di­tions, in­clud­ing the re­ceipt of nor­mal and cus­tom­ary reg­u­la­tory ap­provals, the ex­e­cu­tion of in­ter-com­pany agree­ments, re­ceipt of a fa­vor­able rul­ing from the In­ter­nal Rev­enue Ser­vice, arrange­ment of ad­e­quate fi­nanc­ing fa­cil­i­ties, and fi­nal ap­proval by Mar­riott In­ter­na­tional’s board of di­rec­tors.

The Con­se­quences

An­a­lysts are al­ready con­sid­er­ing how Mar­riott's ac­tion will play out. Wall Street Jour­nal re­porters Alexan­der Berzon and Kris Hud­son quoted Robert LaFleur of Hud­son Se­cu­ri­ties as say­ing:

"Once you have this [spin­off] on a stand­alone ba­sis, the world will tell us what a time­share com­pany is worth. We don't have a pure time­share com­pany of this scale."

Rob Webb of Baker Hostetler had this to say:

"This is a shrewd move by Mar­riott to jump-start the re­cov­ery of a ma­jor busi­ness unit that is tem­porar­ily di­min­ished. I have no doubt that it will suc­ceed and that [Mar­riott's time­share di­vi­sion] will hold its lead­er­ship role in the greater hos­pi­tal­ity in­dus­try. "

In gen­eral, the shared own­er­ship in­dus­try has been in tran­si­tion as a re­sult of the cur­rent eco­nomic cli­mate. The tran­si­tion in­cludes the high pro­file ac­qui­si­tion of ILX Re­sorts to be com­bined with Di­a­mond Re­sorts In­ter­na­tional and the ac­qu­si­tion of Sil­ver­leaf Re­sorts by Cer­berus Cap­i­tal Man­age­ment.