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Anyone else have this experience? A friend suggests a fantastic trip and the best part of all is that he ‘found’ a cheap stay at a nice hotel. The catch? Wasting half of a precious vacation day sitting through a hard sell for a timeshare. Ouch. While it’s fun to see how many freebies the company will throw in, all I really think of during these pitches is how I can possibly get rid of this guy and salvage my day. Apparently, even their owners feel the same way as Marriott International (MAR) chose to break up with (well, technically spin off) its timeshare business on Valentine’s Day. Heartless, I know.
The announcement was made during the company’s Q4 conference call this week and the company expects to execute the spinoff via a tax free dividend. The new company will focus on the development of properties under both the Ritz and Marriott brands while MAR will become a pure lodging play. The companies will obviously maintain some type of relationship (franchise fees from spin to parent) and a more detailed breakout of those fees should be available when the Form 10 is released next quarter.
According to J W Marriott, longtime Chairman and CEO of MAR, “The transaction will permit both companies to tailor their business strategies to best address market opportunities in their respective industries. The new timeshare company will be positioned to expand faster over time while Marriott International will further advance its longstanding strategy of separating real estate from management and franchise operations.” Of course it will. One underlying reason for the spin might be the customer base – timeshares are typically sold to consumers, many of whom are still suffering while the hotels have rebounded from a resurgence of the business/corporate traveler. Another likely motivating factor is that the timeshare business features volatile earnings and is more capital intensive. Not exactly investor friendly traits.
The timeshare segment reported roughly $1.5b of revenue in 2010 and at year-end operated 71 timeshare and fractional resorts with more than 400,000 owners and approximately 10,000 employees. Stephen Weisz, currently President of the timeshare segment, will become CEO of the new company with Mr. Marriott remaining with the parent. Bear in mind that the Marriott family will still own approximately 21% of each company after the spin.
The market has been reacting rather favorably to recent spinoffs and MAR was no exception with the stock experiencing a nice post-announcement pop. A better understanding of the expected financial relationship between the two companies will be necessary in order to come up with a proper valuation. Although the Four Seasons was bought out and is now private (can use historical info), I was able to find at least one other pure lodging play for comparison, Choice Hotels International (CHH). Marriott might be a better brand though.
We will keep you updated as more information is released.
Disclosure: Author holds no position in any stock mentioned.
