The conflict of interest exists between the shareholders and the bondholders. After Project Chariot is implemented, MII will be of low debt level and HMC will be with high debt. The original bondholders will be tied to risky real estate assets with uncertain appreciation and expected income. Shareholders will gain and bondholders will lose, since splitting the company in two will give shareholders the business upside and bondholders the real-estate downside.
2. In the lecture, we saw a number of different conflicts of interest. Which of these is this project most similar to?
The risk …show more content…
Our group suggest Mr. Marriott recommend this project to the board, mainly on two major reasons.
First, by splitting current Marriott Corporation into MII and HMC, they are able to focus on each of their core business competencies. For MII, without the burden of existing debts from the property side, they are able to leverage their healthy, promising operations to obtain external funds in pursuing better investment opportunities with lower cost of capital. On the other hand, the management is able to concentrate on their service operations to maximize their profits and reduce their cost, without worrying the fluctuation of real estate markets.
On the HMC side, even though the projected net income would be negative, HMC would have stable and guaranteed cash inflows from the MII. The management can focus their attentions on property management efforts and real estate investment opportunities, without worrying about the hotel service complications. As the real estate market has been rebounding from the bottom, HMC could potentially benefit from the recovery.
Secondly, from shareholders’ point of view, this project brings the best long-term profit to them. As the managements and board of directors hold fiduciary duties to the shareholders, it is their responsibility to act on best strategies for the company. Though in the