Chapter 16
Gary Wilson did more in the 1980s than anyone except Bill himself to propel Marriott into the stratosphere. And not far behind Wilson’s contribution was that of his protégé, Al Checchi. Wilson was hired first, as Marriott treasurer. In early 1975, when the company was beginning the roughest year in its history to date, Bill had instituted a hiring freeze, but Wilson dipped under the CEO’s radar to hire his longtime friend Al Checchi to work on a project. For a few months, Bill didn’t know about the new employee. Checchi recalled, “At the River Road headquarters, we all ate at the same cafeteria. Every time Bill Marriott showed up, Gary would signal me and I’d go hide.” But it’s not easy to keep company secrets from Bill, and once he found out about Checchi, he accepted him.
Everything changed for the better during that recession when Wilson and Checchi brokered the sale of the Lincolnshire resort in Illinois to Prudential Insurance for $27 million. “That was the beginning of turning ourselves into a major real-estate developer, but with a firm commitment not to retain the real estate,” Bill noted. “Why wait around for others to build hotels and ask us to manage them when we could construct them, sell them, and keep long-term management contracts? Why wait to be invited to the dance when we could build the ballroom and hire the orchestra ourselves?”
Wilson was put in charge of hotel development deals. Checchi was tasked to raise outside money for a new hotel in downtown Chicago and an expansion of the New Orleans Marriott. He didn’t hesitate to accept the challenge, but he did so with a gut feeling that it was a “suicide mission.” Checchi explained: “Since failure was inevitable in the midst of recession, inflation, and high interest rates, and since I apparently was judged expendable, I was given the challenge of financing and developing what would be two of the largest real-estate projects to be undertaken in America” at the time.
The Chicago hotel, the first new convention hotel built in that city since 1927, would rise forty-five stories and boast 1,214 rooms, making it the tallest hotel ever built in the Midwest. When completed, the expansion of the New Orleans Marriott made it, at 1,354 rooms, the largest in the Marriott chain and the biggest hotel in New Orleans.
Securing the financial backing was almost impossible. “I was doing these things for the first time, and I was running a little scared,” Checchi said. But he was determined to prove himself to Bill. He successfully completed the task by, in some cases, bullying his way into investors’ offices.
The sales of the Lincolnshire and Chicago hotels, along with the New Orleans expansion funding, were the beginning of a financial revolution at Marriott. “For the first fifty years of our existence, we had what could be called a ‘bean-counter’ mentality toward finance. Property leases and traditional mortgages were pretty much the extent of our financial universe,” Bill recalled. “As long as we were leasing and building small facilities like restaurants, our simple financing approach worked very well. But by the mid-1970s, when we were trying to move into the big leagues, the formula was holding us back—especially on the lodging side, where huge mortgages not only limited the number of hotels we could build but put a real strain on what we could show in the way of returns to our shareholders.”
In early 1977, Bill was driving to Richmond, Virginia, with Wilson and Checchi when Wilson asked, “Do you have a few minutes to listen to what Al has to say about a new way to sell?” Bill listened as Wilson continued: “The problem is that our best vehicle for growth is hotels, but we can’t build more than a couple dozen because of the capital it ties up. Besides, it takes ten to twelve years for a hotel to pay back its investment, and we can’t wait that long if we want to hit our 20 percent annual growth target. Al has a way around that.”
Checchi recited how Conrad Hilton had pioneered the management contract idea in the 1950s when the only way he could expand overseas was to find foreign investors. But those contracts did not pay well. Checchi suggested selling a bundle of hotels below their book value in trade for healthy management contracts on those hotels. The cash from the sale would be used to build more hotels. The plan had some complicated twists to assure uninterrupted growth in corporate earnings to please the stockholders.
“I’m not a sophisticated financial person, but I understood Al reasonably well,” Bill recalled, and he approved the concept. Wilson and Checchi bundled seven older Marriott hotels—Twin Bridges, Dallas, Los Angeles, Philadelphia, Miami, Newport Beach, and St. Louis—and sought a buyer for at least $100 million. Equitable, the nation’s third-largest insurance firm, eventually agreed to pay $119 million. But getting Equitable to agree turned out to be far easier than getting J.W. to sign off on it. “Dad didn’t like borrowing to build the hotels, but once we had them, he hated the idea of selling them and giving up all the valuable real estate we had. It was hard to convince him that with the very strong management contracts we had crafted, we would have almost as much cash flow as we would have had if we retained ownership of the hotels,” Bill noted.
On May 9, 1977, Bill and Checchi went to J.W.’s house and laid out the Equitable deal. They took two hours to explain it to him. Three days later, it was raised at a board meeting, and J.W. objected. Twelve days after that, Bill and Checchi again went to J.W.’s home and spent two and a half hours explaining the deal. The day after that, Checchi returned to confer with J.W. yet again.
On the evening of June 8, Checchi was asked back to the senior Marriott’s home to go over the numbers for hours. The next morning at an Executive Committee meeting, J.W. said he had “a natural aversion to selling real estate in an inflation economy.” Five days after that, J.W. had a heated exchange with Al Checchi about selling hotels. Two days after that, Checchi was summoned to the senior Marriott home and underwent another two and a half hours of grilling. J.W. “is very upset about it,” Allie recorded.
And so it went. On August 24, the Equitable “agreement in principle” to buy the seven hotels was publicly announced, and the financial community responded positively. J.W. continued to oppose even as the details were worked out over the next ten months. The owners of the land under the Miami and Newport Beach hotels refused to assign leases to Equitable, so they were dropped from the deal. On June 20, 1978, the $92-million deal for five hotels was ready for the final Executive Committee vote.
The meeting seemed never-ending to Bill as his father filibustered. Finally, after J.W. said he was not going to change his mind, the vote was taken, and every committee member but him voted yes. For his part, Gary Wilson respected J.W. and sympathized a bit with him. “He started the company and made a great contribution. I understood the old man’s mentality because my father was the same way. They lived through the Depression. [J.W.] was irrational about debt. Plus, he wanted the company to stay in the restaurant business instead of hotels, and that’s why we stayed with restaurants for too long.”
Wilson was a rare non-family eyewitness to the battles between J.W. and Bill. “It would be an intellectual argument at first. I’d be on Bill’s side and so would [Allie]. She was a mom, but she also knew which way the company should go. [J.W.] was very lucky that he had Bill as his son, but he wasn’t often happy about it.”
Then Wilson noted how bad it could get when Allie was not there to restrain her husband. “I saw enormous struggles between the father and the son behind the scenes. The old man was tough as hell, a beat-on-the-table type, and Bill doesn’t do that—so his dad would just verbally [try to] intimidate his son. It was terrible. He’d do it in front of me. I mean, it was embarrassing. Half the time, I crawled out of the room. Bill fought hard—we all fought hard against the old man because we all knew which way the company should go.”
Wall Street supported the Equitable deal when it was signed in July 1978. Security analysts universally praised the “creativity” and “brilliance” of the deal. No hotel company had ever sold multiple hotels while retaining seventy-five-year, lucrative management contracts. Bill explained to reporters: “Our objective is to get into a position in which we can develop a pipeline—building new hotels, operating them for a while to establish a track record, and then selling them and operating them under a management/lease contract.”1
At the end of 1978, after the Equitable deal closed, more than half of the company’s 17,000 rooms were managed by Marriott for other owners. By the end of 1981, Marriott owned only a third of the hotels it operated. The Marriott management contract revolution was off to a roaring start, and the company was flush with cash.
In January 1979, Gary Wilson moved up to CFO and Al Checchi was promoted to treasurer. The mentor and his protégé were now in place to do the most good. Wilson’s first move as CFO was so stunning it rocked Wall Street and inevitably spawned many imitators. The fact that Bill agreed to the idea was a genuine act of courage that Checchi still regards as a “bet-your-company” decision.
Wilson and his financial team, including top strategic planner Tom Curren, had been considering for months what to do with all the cash coming in from hotel sales. Bill asked for a strategic plan for the use of the money. One of the recommendations was to buy up as much undervalued Marriott stock as feasible in the open market. Bill agreed, authorizing repurchase of five million shares of Marriott stock. By November, Wilson had accomplished the objective for the bargain price of $70 million.
Gary Wilson.
Wilson wanted to double down on the stock repurchase program, and he made a pitch at the January 1980 board meeting. Knowing the massive risk Bill was on the verge of taking, Checchi tried to lighten the mood. In Bill’s private copy of the presentation, he included a picture of Bill taken at the Seattle hotel opening, sitting in a canoe floating in a swimming pool, wearing a Native American headdress. The caption read: “What? Me worry?”
Wilson offered four alternatives to the board: “internal expansion,” paying cash dividends, acquiring more businesses (Wilson suggested that Marriott could double in size by acquiring the ailing Walt Disney Company), or buying back more company stock. Wilson maintained that the latter was the best use of the money. Bill had been briefed beforehand on what Wilson would recommend, and he backed the stock purchase. Both J.W. and Allie were absent because of illness. When the presentation was over, the board gave unanimous consent to the stock purchase plan.
“What Bill approved would amount to the largest share buyback in American corporate history,” recalled Checchi. On January 29, 1980, the company announced a tender offer for up to 10.6 million shares of its common stock at $23.50 a share. By the time the offer expired a month later, on February 28, tenders for 7.5 million shares were accepted and paid for. Bill came back to the board and asked for authorization to buy on the open market the additional three million shares not purchased during the tender offer’s time limit. J.W. was present for this board discussion, and he vehemently argued against the whole idea of buying back stock. But when he saw which way the wind was blowing, he and Allie abstained from the vote, which was otherwise unanimous. “He was crushed to be outvoted,” Allie recorded.
It turned out to be an unnecessary tempest in a teapot. Just five days after the board meeting, Bill voluntarily shut down the repurchase program because Marriott stock had risen so much it then exceeded the “bargain” price Marriott had been paying. When it was over, the investment world was surprised to realize that in less than a year the Marriott company had bought back 12.5 million of its own shares—or one-third of the company’s common stock.
A historic precedent was set, and the Marriott move began to have a hidden but seismic impact on the corporate finance world as well as on the company itself. At the annual meeting held two months after the stock repurchase, Bill spoke to the stockholders in terms that went against everything his conservative father believed about debt. “In a time of high inflation, our company should maintain a prudent level of debt. Not only is long-term debt repayable in cheaper dollars, but interest on debt is tax deductible. This makes debt the cheapest form of capital available to us.”
One of Wilson’s lieutenants at the time, John Dasburg, maintained that what Wilson dreamed up, and Bill implemented, changed the way American corporations operated. “That major stock repurchase was very novel at the time in the American corporate environment. It may be a bit arcane to some people, but it sure as hell is important. Gary took something that was an important financial concept and made it acceptable and pragmatic in corporate America.”
Making history was all well and good, but what pleased Bill the most was the result. By 1985, the same share the company had bought for $20 was, after stock splits, worth $200 per share. Thus, the best investment Marriott ever made was in itself.
• • •
Bill’s family “no-big-shots-here” mantra went with him to the office, where he asked people to check their egos at his door. His belief in humility was a core value that emanated from his religious upbringing. Debbie said her father never liked arrogance in employees, and then she qualified it: “He doesn’t like people who are dumb and arrogant. If they are smart and arrogant, he can deal with that.”
Bill’s style was to run his company by consensus. Longtime chairman of the National Geographic Society Gilbert M. Grosvenor, who knew Bill as a child and also served on the Marriott board, said that, unlike so many CEOs, Bill “just doesn’t have a big ego, so he’s got an unusual style based on management by persuasion, not power.”2
Bill often harked back to the Christmas of 1954 when he had felt empowered by Dwight D. Eisenhower because the president had asked him, “What do you think?”
“I became a great believer in that phrase, and I’ve used it ever since. ‘What do you think?’ It works wonders! This more active version of listening is a particularly important skill for high-level leaders—like presidents and CEOs—who, by their lofty positions, often intimidate junior staff.”
He routinely employed the listening technique during company business meetings. “When you open your ears, you open your mind, too. So, for example, I found it was vital not to signal that I’ve come to my own conclusions too early in a meeting. The less I say, the less I sway the discussion. I’d rather have people feel comfortable suggesting wild-eyed arguments or pie-in-the-sky concepts than take the chance that someone is holding back a good idea because they’re picking up signals that I’ve already come to a decision.”
Bill honed the attribute of decisiveness, recognizing that it had been one of his dad’s challenges. “My father had a very hard time making decisions. He was raised in a family of eight kids who were noisy, opinionated, and just loved to argue. Dad took debate in college. I used to tell him, ‘You’d rather argue than play golf or go fishing.’ I won’t drag stuff out. A lot of CEOs want stuff analyzed to death and they never do anything, and I think that’s a terrible failure.”
Bill considered yes-men who always agreed with him to be, in effect, disloyal. But one meeting Checchi described illustrates how people didn’t feel entirely comfortable about standing up to the boss. Division heads had gathered to discuss a proposal that they all knew Bill liked, but they didn’t. Before Bill joined the meeting, the executives passed the time grousing about what a terrible idea it was. When Bill arrived, he clapped his hands together happily and asked, “How’s my project looking?”
“Well, Bill, it’s looking good—really good,” the assembled executives chimed in, at least everybody except the most junior executive, Checchi, who had not opened his mouth. Bill turned to him and asked his golden question, “You haven’t said anything. What do you think?”
“I proceeded to rattle off all the reasons why the project was a disaster in the making—the same reasons that everyone around the table had been airing just minutes before Bill came in,” Checchi said. The room went silent. Bill paused and frowned, and then exclaimed, “You know, you’re absolutely right. Kill it!” And then he walked out of the room.
Marriott could not have achieved the extraordinary growth in hotels it did in the 1980s without the fortuitous confluence of events and people that occurred in 1981. By that time, a typical hotel’s institutional money sources—the major insurance companies and pension funds—were drying up. Interest rates had soared so high that those traditional investors were backing away, or demanding a bigger piece of the pie than Marriott could afford to share.
Both Bill and Gary Wilson saw a ray of financial sunshine when Ronald Reagan was elected president in 1980. Believing Reagan was firmly committed to enacting tax cuts, Bill and Wilson hired John Dasburg, a partner with the accounting firm KPMG Peat Marwick, as the new vice president of tax. Thus, Marriott would be poised to take swift advantage of tax changes.
Using Reagan’s mandate from the voters, two Republican leaders, Congressman Jack Kemp of New York and Senator William Roth of Delaware, coauthored the Economic Recovery Tax Act (ERTA), which was passed by Congress in August 1981. Only a month after President Reagan signed it into law, Wilson appeared before the Marriott board and unveiled his big new idea—limited partnership syndications formed to buy Marriott hotels.
He explained to the board that “the major insurance companies to whom we have looked in the past have not been willing to enter into long-term leases or management contracts on terms acceptable to the company. The proposed hotel limited partnership is an alternate source of financing. Under this proposal, a publicly owned limited partnership [LP] would be formed to develop certain Marriott hotel properties, [which would be] under a long-term management agreement” with Marriott.
What made this so appealing to private investors were the new ERTA tax benefits that made the unique syndication a tax shelter. Wilson listed a few disadvantages, the worst being that the limited partners, not Marriott, would reap the benefits from future resales of any of the hotels. But Wilson advised that Marriott executives or board members would be allowed to invest in the LPs. “Our investment bankers believe that significant participation by officers and directors—particularly members of the Marriott family—would give added credibility to the partnership and assist us in better marketing the offering.”3
Bill led the way to unanimous consent for Wilson to work out the details. For their first effort, called the Potomac Hotel Limited Partnership, Wilson put together an offering of eleven hotels. Five were already in operation, three were under construction, and three were only in the planning stage. The mix of hotel development was intended to be a template for future LPs, if this one succeeded.
The greatest attraction of limited partnerships to investors, especially those in higher income tax brackets, was the tax breaks. When Wilson first ran the numbers and reported back to the board in November, it looked like every dollar an investor put into an LP would bring five dollars in tax deductions. By the time Marriott was ready to file the proposed LP with the Securities and Exchange Commission, Wilson determined the benefit was even greater—an 8.7-to-1 ratio, instead of 5 to 1. Someone who invested the minimum of $10,000 in the Potomac LP would receive $87,000 in tax shelter deductions over the next fifteen years.4 Once again, as with the stock repurchase program, when this new financing vehicle became public in January 1982, it generated substantial excitement throughout the industry.5
“Marriott Corp. has created an unprecedented plan to finance expansion of its hotel business by selling tax shelters to the public,” wrote chief financial writer Jerry Knight of the Washington Post.6 “Tax shelter sales are a common method of raising money for real estate ventures, but the Marriott deal [is] the first time a major corporation has [done it].” The New York Times agreed: “Marriott is a financial innovator, with such twists as the recent public syndication, an industry first [and] a clever use of financing.”7 Steven Rockwell, an analyst with Alex. Brown & Sons Inc., was quoted in the Times article as calling the idea “masterful.” John Lanahah of Laventhol & Horwath, an accounting and consulting firm specializing in lodging, said, “Marriott is certainly the most aggressive and visible in the industry [with its] unusual financing techniques.”8 In the six months following Marriott’s LP announcement, another L&H official informed Forbes that “several other chains are already beating down our door asking for help in setting up similar deals.”9
The Chesapeake Hotel Limited Partnership became the second syndication, a nine-hotel offering that sold out quickly in 1984. With two under his belt, Bill went all out with LP financing. “I believe there were nineteen of them between 1982 and 1990, when the last one closed,” recalled Assistant General Counsel Bill Kafes. “The total amount raised was in the billions of dollars. That was the financing vehicle for much of our hotel development all through the 1980s, which was the most rapid period of Marriott hotel development.”
Gary Wilson’s reputation was one of bluntness, arrogance, and intellectual intimidation. But, on the plus side, he had a laserlike command of detail second only to Bill’s, a loyalty to the company, and a willingness to be convinced by logical argument. He had one unrelenting opponent at the company—Jack Graves, the longtime head of Architecture and Construction (A&C). It was Graves who dubbed Wilson “The Armadillo” because you could try to run over him, but the well-armored Wilson would never stop crossing your road.
Like Graves, many within the company feared that CEO Bill Marriott had become so entranced with “deal makers” like Wilson and Checchi that his appreciation of the “operators” who made up the core of the company would inevitably diminish. Their fears were unfounded. Bill was and is an operations man. Both Bill and Gary knew that every one of their team’s better deals depended upon the success of the company’s superior operators. “My philosophy of management is that no company can do well if it is not balanced between operations, finance, and marketing,” observed Wilson. “If you have any company that’s skewed in one direction or the other, it’s not going to be successful. You try for a balance among the three. We (Marriott) became strong financially (because) we clearly were a strong operator.”
Even longtime Marriott hotel operator Bus Ryan reluctantly recognized that, though they were often personally abrasive, these fast-talking, high-flying deal makers were a necessary evil for Marriott. “Deal makers don’t care what they say to people. They don’t care what people say to them. They’re made with a certain amount of armor. They don’t let little things bother them. That’s a gift they have. They can sit at a table with somebody and say something that’s totally off the wall with somebody just to test them. They know how to handle those kinds of things. They end up making the deal and shaking hands. So a certain amount of arrogance is healthy in those things. You can’t be a good deal maker without being a gunslinger, and we needed these gunslingers.”10
One trouble with gunslingers is that they usually move to another town when no more challenges are left in the town for them. Bill knew it would be impossible to keep his best deal makers forever. “People like Gary and Al are so smart they get very easily bored,” he said. “They come in here and get all excited. They want to run out and grow real fast by buying something. But they don’t want to mess with the nitty gritty. Yet this is the heart and soul of what made our company. It is brick by brick, inch by inch, step by step, hotel by hotel.”
Checchi was the first to give notice, but Wilson quickly replaced him with another bright star, Stephen Bollenbach, who had a background in finance, real estate, and the savings and loan industry. To the company’s “operators,” Bollenbach was a breath of fresh air. In a four-year stint with Marriott, he helped facilitate big changes, including the growth of yet another company franchise—airport restaurants and gift shops.
At the same time as Bill began carving out a lucrative hotel chain from his father’s restaurant company, Chuck Feeney founded Duty Free Shoppers Group (DFS) in Hong Kong. The concept was simple: offer high-end items free of import taxes to trans-Atlantic airline travelers who had a refueling stopover between Europe and North America.
DFS became the global pioneer of the duty-free concept in airports and other tourist locations. It was most lucrative in Asia, where cognac, cigarettes, jewelry, and other luxury items could be marked up more than 300 percent. DFS profits exploded after 1964, when Japan lifted the postwar foreign travel ban on its citizens. Flush with cash from two decades of saving, Japanese tourists immediately showed a voracious appetite for American goods, especially if they didn’t have to pay taxes on them.
Eventually, other companies, including Host International, began challenging DFS’s dominance. Then came a business shootout in 1980, which changed the future of not only DFS and Host but also Marriott. DFS’s lease had expired at the Honolulu Airport that year, so Hawaii’s Department of Transportation put the lease up for bid. The winner would get the prime shop site next to Japan Airlines’ gates and a downtown duty-free store.
DFS bid $165 million and expected to win; no significant competitor had been detected. With victory assured, Chuck Feeney flew to Honolulu for the bid postings. Then, an unexpected bid went up on the board—from Host International for $246 million—and Host won the lease.
Always a fierce competitor, DFS quickly set out to emasculate Host in Hawaii before its operations could begin. DFS raised the salaries of its Japanese-speaking staff so Host couldn’t poach them, and upped its commissions to travel agents, tour guides, and taxi drivers to make sure they stayed loyal to DFS. Host was beaten even before its shops opened in January 1981. In less than nine months, Host lost $25 million. Its stock plummeted. Smelling blood in the water, DFS offered to buy the limping Host, and Howard Varner, CEO of Host, agreed in principle. When Bill was tipped off about the agreement, he jumped into the fray.
Bill and Host had been talking merger for years. Host operated airport food services, gift shops, fast-food restaurants, and specialty dinner houses, including fifteen that it had purchased from Marriott.
Two concurrent events had increased Bill’s interest in acquiring Host. Eight months before, he had purchased airport terminal concessions from AMFAC Inc. in Anchorage, Las Vegas, and Albuquerque. Three months after that, the Professional Air Traffic Controllers (PATCO) began an illegal strike. As federal employees, the 13,000 air traffic controllers had contractually sworn never to strike. The new president, Ronald Reagan, ordered them back to work. They were given forty-eight hours to return. Any employee who didn’t would be fired and banned from federal civil service for life. Only 10 percent—about 1,300—returned to work. The immediate impact was a temporary 50 percent cut in available airline flights, which significantly affected Marriott’s In-Flite catering income.11
But Bill soon discovered something unexpected: business at his airport terminal restaurants and concessions, including the recent AMFAC acquisitions, boomed so much that it covered In-Flite’s losses. Travelers came to the airport earlier, had longer layovers, and thus spent more money at terminal concessions. Bill told Forbes: “If we don’t get them on the plane, we’ll get them in the airport. If your flight is delayed by two hours because of the air traffic controllers’ strike, you’re a lot more likely to stop for a drink or something to eat than if it’s on time.” The Host acquisition was a way to defend against the ups and downs of the airline catering business.12
Bill needed board approval for the acquisition, and his father the chairman was vehemently opposed. While Bill was looking at hotel sites in Mexico, J.W. convened a special board meeting to settle the Host matter. Bill joined the meeting by phone. The board went against J.W. and agreed that Bill could offer up to $30 for each Host share. What Bill didn’t know was that Varner had gone back to DFS and cut a deal for $29.25 a share. When Bill found out that Host was not even going to allow him to make a counteroffer, he was furious. Varner refused to take his phone calls, so Bill began playing hardball. “We got on the phone to Hong Kong advising DFS we were going to fight in court if necessary, charging them with tortious interference,” a term for illegally interfering with a contract. “Signals began coming back through the lawyers that they might be interested in a three-way deal.”
Meanwhile, J.W. had worked himself into a frenzy about the deal. On Monday, November 30, 1981, he met with Bill to try to stop it. “I made a mistake visiting with Billy,” he wrote after the meeting. “He wants the world and I hope he can handle it!” In the afternoon, his heart began beating irregularly, and Allie assumed her husband was about to have another heart attack. Fueled by fear, she called Bill. “I talked to Billy and said I hoped we were dead before we went bankrupt,” she wrote in her journal.13
Bankruptcy was not in the cards. No matter what Bill did, J.W. and Allie were set as multimillionaires for the rest of their lives, so Bill might have brushed off his mother’s remark, except for the harshness of her tone. So he got mad instead. “Billy blew up,” she recounted. “He said, ‘This is the damndest, dumbest thing I’ve ever heard.’”
Allie was taken aback. “He was mad at me. It’s the first time he’s ever been mad at me.”
They made up the next morning. That same morning, Host’s Howard Varner finally called and said he would meet with Bill and DFS the following day in New York City.
The summit held in a Manhattan skyscraper on December 2, 1981, was an all-day battle. “It was maybe the toughest business day of my life,” Bill wrote.14 Marriott agreed to pay $31 a share for Host and to sell DFS the Host duty-free operations at the Los Angeles and JFK (New York) airports. Bill also agreed that DFS could purchase 875,000 shares of Host.
Bill made it back to D.C. in time for Donna’s big National Symphony fund-raising night with its annual ball. It was a glittering, white-tie affair, and he could enjoy himself with the grueling negotiations behind him. At the end of the evening, according to his journal, “Dad actually congratulated me on the Host deal. He seemed real pleased.”
The Host acquisition turned out to be one of the best bargains Bill ever made. “Everybody says acquisitions are very risky, and they are. Most of them don’t work, and that’s true. But this one was a barn burner,” Bill said. “In fact, it may have been the best acquisition that ever took place in our industry up to that point. The timing was perfect. We bought the company when they were in trouble, so we got it at a fair price. They had a lot of restaurants that we didn’t want, so we sold off all the restaurants. Then we took the airport business, and there was a huge amount of air traffic growth. So we caught it on the upswing when the air traffic growth was strong and we had a great run. Without them, we would never have gotten our 20 percent growth in earnings at that time.”
• • •
Marriott had come a long way since President Harry Truman had stopped to eat at a Hot Shoppe restaurant on the way back to the White House after his 1949 inauguration, but there were still Hot Shoppes in the greater D.C. area. Many of them had been closed in the late 1970s, but by the mid-1980s, Marriott still operated twenty-two Hot Shoppe cafeterias and seven restaurants. Most of the survivors served neighborhoods with a need for bargain prices and family fare, which earned a loyal base of elderly customers. Some Hot Shoppes were exceptional moneymakers, but they would never be a significant profit-making division of Marriott. Any profit is good profit in business, but Bill always had to consider how much valuable management time, including his own, went into nursing along divisions that had limited growth potential.
The Big Boy chain increasingly began to fit into that category. Big Boy had been a consistent profit center since Bill bought the chain in 1967, and it had been pivotal in helping the company weather the recession of the mid-1970s. Bill’s team, headed by his brother Dick, had turned it into the nation’s number-one coffeehouse chain. By 1981, the company owned and operated 195 Big Boy coffee shops and fifteen Big Boy Jrs. In addition, Marriott franchised another 941 Big Boys. When Marriott purchased the company, Bill knew there was a looming problem. Its founder, Bob Wian, had been so anxious to expand his concept across the country in the early days that he had made some bad franchise deals that Bill couldn’t get around.
The Roy Rogers fast-food chain, wholly owned by Marriott, had brighter prospects for expansion. Bill knew the best way to grow the chain was by purchasing other fast-food restaurants and rebranding them as Roy Rogers restaurants, which he did as quickly as possible. An important key to success in the fast-food business was national advertising, which for Marriott was cost effective only if Marriott had a big market share. It didn’t pay to run expensive TV ads if Marriott had only a smattering of restaurants. The company could either build more restaurants from scratch—the most expensive and time-consuming option—or buy and rebrand existing restaurants. The best opportunity for the latter was acquisition of the Gino’s hamburger chain, with 466 restaurants on the East Coast.
Bill went to the board with a proposal to buy the Gino’s empire for $100 million. That included restaurants under several brand names, such as KFC. A worried J.W. responded with a barrage of questions. In the end, he abstained from the vote, and, for only the second time, Allie voted against Bill.
At the annual stockholders’ meeting in 1983, Bill reported that the deal “has gone better than planned.” The bottom line came in under $49 million. The results of the Gino’s purchase were not as spectacular as Host had been, but it was a solid and highly profitable move, leapfrogging Roy Rogers several notches higher up the hamburger hierarchy.
• • •
There was one idea—a really big idea—that Bill’s top gunslinger, Gary Wilson, had begun pushing in the late 1970s: that Marriott should buy the Disney company. After Walt Disney died in 1966, “the company was brain-dead for years,” Wilson said. “Like most entrepreneurs, Walt wasn’t lucky enough to have a son like Bill Marriott. He surrounded himself with guys who never grew. So after he died, they kept asking, ‘What would Walt do?’ It was the wrong question. Walt would likely have changed with the times, but they couldn’t.”
When Gary first raised the prospect of a Disney acquisition, “Bill looked at me like I was nuts, because Disney was two or three times bigger than we were back then.” Finally, in late 1980, Bill relented, having been impressed by Wilson’s persistence and confidence in the idea. He gave a cautious yellow light to proceed with a detailed review of the prospect.
What Wilson needed was inside information from the notoriously tight-lipped organization. He thought of a Trojan horse—negotiate with Disney for a new Marriott Orlando hotel, and thereby learn the company’s inner workings. In February, Wilson and Bill flew to Los Angeles and met with Disney CEO Cardon Walker, who initially dismissed the idea of another hotel. By the end of the meeting, Walker grudgingly agreed to continue discussions. He ended up killing the project, but during the negotiations, Wilson had seen inside Disney’s financials and had proved to Bill that Marriott could dramatically improve Disney profits by simply raising theme park admission prices and expanding hotel capacity. What worried Bill, though, was Disney’s moribund film division. At the time, Disney hadn’t produced a blockbuster in years, and Marriott had no one with the expertise to turn that around.
The project would require a $2.5-billion loan to bankroll the acquisition, and Disney wasn’t for sale. Bill didn’t want to be involved in a hostile takeover; it wasn’t his style. But he gave Wilson one last hope in late 1983—if a buyer could be found for a spun-off Disney film division, Bill would take a run at buying Disney. No buyer could be found for that portion, and after three years Bill put an end to the plan.
In February 1984, corporate raider Saul Steinberg took advantage of the golden opportunity Wilson had discerned. After secretly buying more than 6 percent of Disney stock, he announced his plan to buy up to 25 percent of the shares, which put Disney “in play.” Ironically, at that point, the main thing that saved Disney from a hostile takeover was the Marriott connection. Because Checchi had been part of Wilson’s team looking at the Disney acquisition, he knew all the details and persuaded his new employers, Bass Brothers Enterprises, to put together a complicated subsidiary-related plan that made it too expensive for Steinberg to continue his bid.
As the largest shareholders, Bass Brothers then became the new de facto owners of Disney. At that point, Checchi went to Wilson and offered Marriott a great deal. Bass Brothers would sell its Disney shares at a reasonable price, and Marriott could finally own Disney. Wilson managed to put together $2 billion in financing for the deal and took his proposal to the finance committee of the Marriott board.
But Bill’s heart wasn’t in it. Following Bill’s lead, the committee decided to pass on Disney. Wilson was greatly disheartened. “I’d been there for ten years and done almost everything I wanted to do—and everything Bill wanted me to do. But when he turned it down, I didn’t harbor any ill feelings.”
Checchi and Bass Brothers found another buyer, who ended up recruiting the chief of Paramount Pictures, Michael Eisner, as the new Disney CEO. With that brilliant hire, Wilson decided to take one last run at Disney. He revived the Marriott offer to manage Disney’s three hotels at the two parks, as well as build and operate new ones. For a while, Eisner and Bill both entertained the idea of the partnership. Bill knew the possibility of a deal with Disney was important to Wilson, who was clearly getting bored at Marriott. Bill’s hope of somehow keeping Wilson engaged is the only explanation for why, at the same time, he made a bid to own a major railroad company. “It was Gary’s idea,” Bill said. “Gary wanted to leave the company, but he wanted to stay involved. So he wanted me to partner up with him and the Bass Brothers to buy Conrail.”
Consolidated Rail Corporation was created by the federal government in the early 1970s to take over the routes of bankrupt Penn Central and six other bankrupt rail companies. Congress authorized the sale in 1981, but it took three years to put it on the auction block. Interested parties were invited to submit bids by midnight, June 18, 1984. Out of the fourteen bids, the most unexpected, for $1 billion, came from venture partners Bill and Dick Marriott, the Bass Brothers, and Gary Wilson. It would be a personal investment for the group, not a corporate acquisition.
Norfolk Southern Railroad eventually won the bid, however, and Bill was relieved about losing. “It was the dumbest thing I ever looked at. What do I know about railroads?” Congress eventually canceled the deal and instead “sold” Conrail to investor-shareholders via the New York Stock Exchange for more than $1.6 billion.
Shortly after Bill lost the Conrail bid, Michael Eisner called Wilson with an offer he couldn’t refuse. Eisner wanted him as the new CFO of Disney. Wilson accepted and left Marriott in August 1985. Years later, at a social event, a curious Eisner made his way over to Bill. Both knew that despite Eisner’s movie-making prowess, it was Wilson and the groundwork at Marriott that had given Disney the boost it needed when Eisner became CEO. Eisner asked why Bill hadn’t bought Disney when Wilson originally proposed it.
“Because I didn’t know there was a Michael Eisner around who could run the movie division,” Bill responded. “I had to make my decision before you were hired, and I knew I couldn’t run it. I don’t know how to make movies or animated cartoons. I don’t know what sells and what doesn’t sell. I had no feel for the entertainment business.”
Bill subsequently summarized his final thoughts about this “missed opportunity” in the 1997 book he coauthored with Kathi Ann Brown, The Spirit to Serve: “The Disney question is a fine example of an opportunity that came and went, never to return. It’s also a good illustration of what I think is [a key] rule of decision-making: Don’t waste time regretting, revisiting, or ruminating over what might have been. Have there been moments when I’ve wondered what might have happened if Marriott had acquired Disney? Sure. But I made peace with the decision years ago. The making peace part is important in decision-making. If you spend time going over the what-ifs of every decision you make, you do nothing but waste time that could otherwise be going into exploring new opportunities.”15