Chapter 19
Billy Marriott was eight years old when he first set foot on New York City’s Times Square in 1940. He and his parents were on their way by car from Washington, D.C., to a summer vacation in Maine when J.W. decided to treat the family to a night at the luxurious Hotel Astor on Times Square.
When Billy strode through the doors into the grand lobby with its twenty-one-foot-high colonnade of marble and gold, the Hotel Astor was the most popular meeting place on Broadway. In the center of the lobby was an ornate clock under which couples often met, and which was featured in a Judy Garland movie, The Clock. At the time of the Marriotts’ visit, the hotel was the temporary residence of several of the rich and famous, including Charles Lindbergh, Will Rogers, and Arturo Toscanini.
Times Square never lost its allure for Bill, who returned two decades later in 1960 in the hope of opening a hotel there. At the time, he was chief of Marriott’s “Hotel Division,” overseeing a grand total of two hotels. He was thinking about buying the historic twenty-five-story Times Tower, built in 1904 as the headquarters of the fledgling New York Times. Though the building was still owned by the Times in 1960, the newspaper had moved its offices elsewhere.
At the time, J.W. was a board member of the American Motors Corporation, and he had worked closely with AMC President George Romney on a proposed partnership to buy or build a hotel in the Times Square area. An AMC executive suggested renovating the Times Tower instead of building from scratch. Bill worked up the figures, and it looked like it could be done. But the deal subsequently died because of poor handling by Marriott executive Milt Barlow and also because the deal’s biggest champion, George Romney, left American Motors in 1962 to become Michigan’s governor.
A decade later, the whole area was in sorry shape. The Hotel Astor had closed its doors in 1967. Prostitutes, drug dealers, and drunks took over after dark, and theatergoers would hurry out of the area after the shows. Hoping to turn around two decades of decay, Mayor John Lindsay approached Atlanta architect-developer John Portman about building a new hotel on Times Square. Portman had designed the first eye-popping hotel atrium in Atlanta, which had jump-started the Hyatt hotel chain. He put an option on Times Square property but could find no one willing to bankroll a luxury hotel in the seedy neighborhood. He gave up in 1975. That year, J.W. and Allie visited Times Square and could not believe how bad it had become. Wrote Allie that night: “Terrible neighborhood now. Trashy pornographic stores & peep shows.”1
Three years later, Mayor Ed Koch lobbied Portman to return to the project, even though it had already been dubbed “Portman’s Folly” by critics. Koch arranged tax incentives and a federal redevelopment grant, so Portman agreed to try again, but by mid-1979, the projected cost of construction was $200 million, and no one was interested in funding Portman and his folly. A year after that, along came Bill Marriott, who strongly believed that Portman’s hotel could not only make a profit but also begin a revival of the wonderful Times Square of his youth.
Portman and Marriott had been competitors for more than a decade by the time they sat down to discuss a potential partnership in New York City. Just two years before, in 1978, the two men had dueled over rights to build a hotel two blocks from the White House. Bill won and built the hotel, which he named simply the J.W. Marriott. It became the company’s flagship. When he heard Portman needed a partner for a hotel on Times Square, Bill was all in. From the outset of the negotiations, Portman said he wanted the Marriott brand on two hotels—Times Square and a second Atlanta hotel. Bill took it to the Marriott board.
In the seventeen years since he had become president of the company, Bill had rarely failed to receive a unanimous vote from the board for every project he recommended. His father had often harangued him and vocally opposed him even at the board level, but when J.W. could see that every director—each of whom he (J.W.) had handpicked—was in favor of Bill’s proposal, he would usually cast a vote in favor or abstain. The vote at the February 1981 board meeting was a notable exception.
Bill showed the board plans for a fifty-one-story hotel on Times Square with nearly 1,900 rooms. J.W. voiced strong opposition, saying there were too many other capital expenses facing the company at the time. When the vote was taken, J.W. was the only negative vote. Even Allie voted yes. “I opposed taking $300 million hotel on Times Square, but Bill got his way,” J.W. lamented in his journal before privately conceding that it would be “a beautiful hotel—greatest in America.”2
Four months later, with relatively little debate, the whole board also signed off on the $190-million, 1,800-room Atlanta hotel partnership with Portman.
The Times Square project soon entered rough waters. Litigation over the fate of the historic Morosco and Helen Hayes theaters on the property, combined with other delays, drove the price up to $322.5 million, making it the most expensive hotel being constructed in the United States. That brought the project back to the Marriott board, where J.W. had another chance to protest. For the first time ever, when the vote was called, both J.W. and Allie voted against the project. Bill wrote in his journal, “It is disappointing to have them go against me.”3
Not one to give up easily, J.W. sent his son a handwritten seven-point memo two weeks later, signed “Mother & Dad,” asking him to reconsider the project. The hotel was too expensive, he said, the neighborhood was “disreputable,” and the trade unions were likely to interfere in a nonunion project. “Why gamble?” J.W. asked, adding that the premium Marriott hotels in Atlanta and Boston “plus all others” should be enough. J.W. surprisingly closed with a conciliatory reference to himself and Allie: “Bill—maybe we can’t see far enough?”4
Ironically, it was J.W.’s obsession with artificial grass that finally pushed Bill over the edge on the Times Square deal.
J.W. would have covered every Marriott concrete surface with Astroturf if he could have. All of the company’s general hotel managers had been subjected to his Astroturf lectures ad nauseam, and perhaps no one more than Steve Hart, general manager of Camelback. “He wanted every pool deck and every outdoor deck—just about every piece of concrete we had—covered with Astroturf. He loved the wonderful fresh green color and texture of the covering.” One night, after an executive meeting at Camelback, J.W. got a devilish look in his eye when he turned to Hart and said, “Steve, there’s something we haven’t Astroturfed yet.” He reached into a bag and pulled out a toupee made out of Astroturf, and Hart obligingly put it on.
It was Bill who got the brunt of J.W.’s Astroturf fixation. “Dad was constantly after me to use large quantities. He even checked Astroturf prices on a near-weekly basis at the country hardware store not far from the family farm in Virginia. He would walk into the office on Monday morning, quote the latest price, and wait expectantly for me to jump at the chance to buy in bulk at the store’s low rate, which was about half our procurement price. If we bought it in the country, he pointed out, we could use twice as much. The Astroturf update became a predictable part of our weekly ritual.”
On June 19, 1982, Bill was in his office, mulling over the last-minute details of the Times Square hotel deal, when the phone rang on his desk. It was the landowner, reminding Bill that his option to buy the site would expire in six hours. After that, the new sales price was likely to be much higher.
Then another phone lit up. It was the general contractor, reporting that he could not secure a “no-strike” clause in the construction contract.
Then, a third line lit up. It was the mayor’s office, calling to get confirmation that Marriott was going forward with the deal.
The fourth caller was J.W.: “When are you going to put Astroturf on the balconies of the Twin Bridges hotel?”
“Just when you might think I would have been most dismayed to have to listen to yet another lecture on the merits of Astroturf, I was in fact relieved,” Bill recalled. “My father’s simple, down-to-earth question about fake grass had the effect of bringing me down to earth, too, reminding me of the company’s real priorities—attention to detail and looking after our customers’ comfort.”
The call from J.W. crystallized Bill’s thinking, and he told the other three callers that the hotel was a go. He wrote in his journal that evening: “I finally decided to go ahead with the new hotel based on the vitality of the new convention center, and the lack of competition in NYC for a truly first-class convention hotel.”5 The final price would be $500 million. “It was probably the biggest and toughest decision I ever had to make.”6
Portman and Bill shook hands over the Times Square project after signing the final contracts on July 2, 1982. As much as anything Bill had done, this was his “bet-the-farm” move, and it was a pivot point in Marriott company history. If the half-billion-dollar venture failed for any reason, the negative reaction of shareholders and investment analysts would be harmful to the company. Positive assessments from that sector had always been based on faith in Bill’s business savvy. If he slipped on this big, very public decision, that confidence would seriously erode.
For such a historic event, the hotel still had no name. Bill and Portman met in October and decided on New York Marriott Marquis. Their Atlanta joint venture would be called the Atlanta Marriott Marquis. As Portman explained to the press, this would distinguish the two hotels as a “new class of hotel,” and the Marquis title would be given to future Portman-Marriott hotels, should there be any. The signing of the deal did not mean the hotel was a slam dunk. Before Marriott came aboard, Portman had worked out $150 million in loans, but that wasn’t enough. No one had as much faith in the future of Times Square as Bill did, and, in the end, he was willing to put his own money on the line.
When insurance companies and banks could not be found to buy hotels Marriott was building, Gary Wilson had used the “limited partnership” option, which provided significant tax advantages to investors. The LP plan worked easily for the Atlanta Marriott Marquis, and in that case the idea was so popular that investors had to be turned away. For the New York Marriott Marquis hotel, Wilson put together an initial consortium of twenty-three institutional investors. Nearly $100 million in additional funding came from a partnership of Portman and Marriott, but Marriott had to supply 89 percent of it. At the eleventh hour, Bill turned to his brother Dick, who never failed him when Bill asked for his support. The two of them then reached out to Gary Wilson, Butch Cash, and Fred Malek to join them in a partnership taking on 39 percent of the equity, leaving the corporation with 50 percent. They agreed, and the hotel went forward because Bill’s loyal brother and three executives backed his play with their own money.
With the funding in place, the challenges continued. “Never have we built a hotel which has been more difficult to design and build,” Bill said at the “topping-out” ceremony in October 1984. “Bringing building materials to this site and erecting them is a challenge, perhaps only surpassed by the building of the pyramids years ago.” That was not mere hyperbole; besides the mind-boggling logistics of building a skyscraper in the middle of Manhattan, there was also the frustration of dealing with construction trade unions, a portion of which were thought to be controlled by organized crime syndicates.
Construction proceeds on the New York Marriott Marquis.
Jack Graves, then head of Marriott’s Architectural and Construction Division, said, “I had been in construction all my life. I thought I knew everything there was to know about building a hotel until I got to New York, and they took me to school. It was all the unknown elements involved there. It was like swimming in cement.”
Portman was even pithier at the topping-out press conference: “Had I known about the problems before we started, I would have left town on the next bus.” When an effusive Mayor Ed Koch declared during the ceremony that the hotel “is the largest human creation since ancient Egypt and the pyramids,” Portman wryly muttered: “Pharaoh had an easier time than I had.”7
During the three-year construction, the contractors had to deal with many of Manhattan’s obstacles—including heavy traffic, the inability to store materials nearby, and a myriad of other issues. When they began blasting the sixty-foot hole for the foundation, the work could not be done during matinee performances at nearby theaters. Later, when the steel structure began to rise, ironworkers had to move from the west side to the east side if they were using noisy air-driven torque wrenches during matinee hours. Materials had to be trucked in at night to avoid rush hour.8
Two Manhattan concrete contractors had a union-supported near-monopoly, and they charged about $82 a cubic yard, which was then $30 to $35 a yard higher than in nearby Westchester County or Staten Island. When Marriott’s contractor tried to work around it by installing precast concrete floor slabs, the Teamsters Union brought construction to a halt with a wildcat strike—one of a dozen or more that slowed the project down. In that case, a court ordered the union members back to work.
A massive mistake by the contractor’s primary out-of-state steel provider—sending steel that was too short—delayed the project almost eight months. Also causing extra delay and cost, Teamsters Local 282 required the contractor to freight the steel to New Jersey instead of directly to New York, so it could be unloaded there, then reloaded onto trucks that were driven by Teamsters into the city.
None of this was news to state and federal investigators, including the Federal Bureau of Investigation and the President’s Commission on Organized Crime, which had long been investigating corruption in the New York construction business. Graves had been warned that there were “four Mafia families” tied to the workers on the job. The news was sufficiently intimidating that Graves found the project management the “most dangerous” he had ever overseen. At one point, when Bill appeared on NBC’s Today Show and was critical of Manhattan union tactics, Graves said he got a call from a reputed crime figure asking him who was feeding Bill these disparaging reports on the union. The next thing he knew, the FBI phoned Graves and asked him to come to their office and tell everything he knew. He dodged the request because he had no firsthand knowledge of Mafia involvement.
Bill also had no firsthand knowledge of that, but he believed that pro-union vandals did everything they could to make sure union workers racked up overtime as the project was near completion. In the summer of 1985, vandals ripped vinyl off walls, poured cement down toilets, yanked electrical wiring out of walls, and flooded bathtubs. “We put on guards, but the guards just turned their backs,” Bill said. “They just knew they had us over a barrel because we had to get the hotel opened. We had conventions coming in, and we had a commitment to get most of the hotel open.” The company had to pay more than $12 million in overtime due to vandalism.
The hotel had its “soft” opening while Bill was still undergoing burn treatments at Massachusetts General Hospital. Guests were so wowed by the hotel’s airy heights, bright lights, and thousands of polished surfaces that, early on, they nicknamed the hotel the “Jewel Box.” The Marquis had the largest ballroom in Manhattan, a two-level penthouse suite complete with a grand piano and breathtaking views, and the city’s first revolving rooftop restaurant. For the “soft” opening, fewer than one-third of the rooms were ready. The contractor had countered the vandalism by cannibalizing from partially finished rooms to make sure those 500 were available.
The grand opening of the New York Marriott Marquis, Marriott’s 147th hotel, occurred one month later during a weeklong extravaganza beginning October 7. The theme for that event was “The Best of Times.” The irony of that theme was not lost on Bill, who had been going through his “worst of times.” He probably should not have attended the affair, since his burns and skin grafts had not yet healed. The video record of his appearance reveals a man still in pain, with both hands bandaged and shaking at times. Rabbi Arthur Schneier, a Holocaust survivor, offered a prayer at the ceremony, thanking God for Bill’s miraculous survival.
When Bill was introduced as the last speaker, it was pointed out that just the previous week he had become “the second chairman in the company’s fifty-eight-year history.” Bill began by recounting the wonder of his first boyhood visit to Times Square. Now, years later, “being here today to preside at the opening of this hotel, to participate in it, is one of the greatest days of my life,” he continued. “My mother wanted to come too, [but] she fell, broke her pelvis, and was not able to be here either.” Glancing at his brother Dick, seated nearby, he offered a tender aside: “There are only two of us in the family, Richard.”
In the quiet days and weeks following the grand opening, Bill stayed home in Bethesda to recover from his burns and regain full use of his hands. He had plenty of time to worry about whether the New York Marriott Marquis had been too risky a venture.
He was comforted somewhat by the fact that, before the grand opening, his marketing team had already booked 1.2 million room reservations through 1995, representing $900 million in revenue, which was the largest piece of forward business any of Marriott’s hotels had ever booked. An industry rule of thumb was that, to break even, a hotel room should generate $1 a night for every $1,000 in construction costs. The New York Times pointed out that “the Marquis will have to charge $220 a night, a rate seen only at top New York hotels like the Helmsley Palace, the Pierre and the Waldorf-Astoria, which are in far more attractive neighborhoods.”9
But it was an act of faith that paid off. In less than a decade, the Marquis was the most profitable hotel in the whole Marriott system, and it has remained so into the twenty-first century.
• • •
If Bill Marriott had an archrival in the hotel industry of the 1980s, it was Darryl Hartley-Leonard, the British-born hotelier who started at Hyatt Hotels as a desk clerk in 1964 and rose to become the chain’s president at the age of forty in 1986. In an interview with the Chicago Tribune, Hartley-Leonard, who was fourteen years Bill’s junior, confessed: “I can’t bear the thought of losing our edge, but in some ways I see it already has happened. I wake up every morning and there’s this great weight of Marriott hanging over my head.”
Only Marriott and Hyatt recorded occupancy rates above 70 percent. Together, the two companies had built more quality hotels in the previous decade than the rest of their competitors combined. Marriott was the larger of the two, managing 150 hotels; Hyatt had 80. Marriott’s hotel revenue was $1.9 billion, while Hyatt was not far behind, at $1.65 billion.
Bill had a healthy respect for Hyatt because of their mutually strenuous efforts to achieve high standards. The two companies kept a close eye on each other’s innovations. However, Hartley-Leonard was usually slower on the draw than the more farsighted and flexible Bill Marriott. One example was Marriott Honored Guest Awards, the frequent-guest program Bill rolled out in 1983.
“We were the first ones really to start a frequent-stay program in the hotel business,” Bill recalled. “Holiday Inn had one before we did, but it was very small and ineffective. We really went all out for it. My gut told me that it would work.” In trade publications, Marriott’s was called the “preferred lodging awards program,” and intuitively added perks like redemption of points for discounts with airline, cruise, car rental, and other partners.
Hartley-Leonard called Bill when the company announced the program and warned him, “You’re making a big mistake. You can’t give away this stuff. You’re crazy. I will bury you in advertising!” Four years later, a sheepish Hartley-Leonard finally had to begin Hyatt’s own frequent-guest program. “By the time Darryl woke up after we got that four-year jump on them, we were so far ahead he couldn’t catch us,” Bill said.
In the mid-1980s, Bill foresaw that because of the aggressive expansion by all the chains, major cities would be overbuilt with full-service hotels by the end of the decade. Alternatives for lodging growth were needed, and the Courtyard concept was only a partial solution. Another idea was smaller full-service hotels designed for suburban markets. Internally, as Marriott studied it for a year, the potential new product was referred to as “baby Marriott” or “mini-Marriott.” Hartley-Leonard came to the same conclusion about a new area for growth and was designing mini-Hyatts at the same time. He won the race to complete the first compact hotel in 1988, but Bill was not perturbed. When Marriott opened its first compact hotel a month later at Peachtree Corners in Atlanta, Bill was confident that he had come up with the better product for the bottom line. Compact Marriotts were soon proliferating at a steady pace. Because Hyatts were more costly, and financing became more difficult to obtain, they were unable to keep up with Marriott.
The editor of Lodging Hospitality concluded in 1986 that while Bill Marriott lacked the charisma, visibility, and good looks of his fellow hotel giants, “he is the smartest man in the lodging industry today. When it comes to innovation, growth and profitability, the Marriott Corporation is, in my opinion, unmatched by any other chain or lodging organization.” A major reason for this success, the analyst determined, was that, unlike the others, Bill did not “shoot first and ask questions later. Marriott prefers to sit back in the weeds, analyze and test extensively before launching a new product or a marketing program.” As an example, he pointed out, while other chains “jumped on the all-suites bandwagon,” Bill waited until he could design the best product to make the most money.10
Not until Holiday Inn unveiled a new generation of all-suite hotels called Embassy Suites in 1983 did Bill feel it was time to enter that market. His Marriott Suites hotels would feature separate living rooms and bedrooms; each suite would also have a large work desk, two televisions, a wet bar, and a refrigerator. The suites would appeal to business travelers seeking an upscale, residential atmosphere, and to families seeking two rooms for the price of one.
All-suite hotels promised a higher profit margin than the mini-Marriotts or Courtyards. Full-service prices could be charged for rooms that cost less to build, and all-suite hotels could be operated with fewer employees. As with the Marquis, Courtyard, and compact hotel prototypes, the location for the first Marriott Suites was Atlanta. Bill presided over the March 1987 opening even as another half dozen Marriott Suites were being designed and constructed in California, Arizona, and Illinois.
With the Suites concept off to a strong start, Marriott strategic planner Tom Curren urged Bill to look closely at possible entry into the economy-lodging segment, which was then defined as hotels under $40 per night. The competitors fell into three categories. There were the independent, “mom-and-pop” units, which had 28 percent of the market; traditional chains such as Holiday Inn, Best Western, and Ramada, with 34 percent; and “new generation” chains such as La Quinta, Comfort Inn, Days Inn, and Red Roof, with 38 percent. Because American travelers could likely support more than 500,000 economy hotel rooms, there was plenty of room for Marriott.
Bill authorized $50 million to design and produce the first ten units, which were to be called Fairfield Inns, a trademark Marriott already owned. J.W. had opened several specialty restaurants under that name in the 1960s. It was a reference to the family’s beloved Fairfield Farm in Hume, Virginia.
Where to put the first Fairfield Inn? Atlanta, of course. “It was always a good place to begin,” Bill said. He flew to Atlanta in December 1987 to personally launch the first Fairfield Inn at the airport. By the chain’s second year, the travel-industry experts in the annual Business Travel News survey ranked Fairfield Inn as the best economy-lodging chain. At the same time, the Inns achieved higher-than-expected occupancy rates and profit ratios. By 1990, Marriott had seventy-five Fairfield Inns in twenty-five states.
When the original Fairfield Inn opened, the Washington Post observed that Marriott had all-suite hotels charging $100 and up a night; traditional full-service hotels at $80 per night; Courtyards at $60; and this new budget offering at about $40 a night. “This gives the company hotels in every segment of the market.”11 Not quite; there was yet another segment Bill coveted. For this segment, a golden opportunity virtually fell into his lap, allowing Marriott to become the overnight leader.
Jack DeBoer was the pioneer of the “extended-stay” lodging concept with his Residence Inns starting in 1975. His decision to add a free breakfast would later become an industry standard. Along the way, he added a partner, Holiday Inns, but then decided to buy them out of the partnership. He needed money to do that, and he turned to Marriott in 1987.
Marriott was already designing its own extended-stay product, but Marriott executive John Dasburg felt that buying was better than building, so he and Bill were open to a partnership with DeBoer or an outright purchase of Residence Inns. DeBoer needed $50 million quickly to pay off Holiday Inns, so he asked Marriott for a loan and promised to either sell the company to Marriott or pay back the loan in six months. It was an offer the company couldn’t refuse. The money was loaned, and Dasburg cut the Residence Inn acquisition deal for $120 million in cash and assumption of $143 million of the company’s debts. Holiday Inn management was stunned by the announcement of the sale. Residence Inn by Marriott was now the runaway leader in the extended-stay market, with ninety-two company-owned and franchised hotels, and another fourteen under construction.
DeBoer then turned around and created a new extended-stay concept, Summerfield Suites, at the high end of the market with rates near $100 per night. The first was opened in 1988, and after several years it was sold to Hyatt. Darryl Hartley-Leonard had belatedly decided Hyatt should be in the extended-stay market too, and Summerfield was his buy-in. He regretted again falling behind his archrival Marriott but was fairly sanguine about the setback. “We had developed an arrogant attitude at Hyatt,” he said. “And then Bill Marriott came along and just stomped all over us, and we learned a very valuable lesson. Just because the rest of the world tells you how great you are, doesn’t mean someone else can’t come along and outdo you. We have fought now for years to regain our position. It’s healthy to have a competitor who just frustrates the hell out of you and keeps you on your toes.”12
• • •
If Bill had not become president of Marriott in the mid-1960s, J.W. probably would have stayed primarily with what he knew—the food and beverage business, with its narrow profit margins. The company would have engaged in limited risk and achieved moderate growth, possibly struggling in the 1970s from the fast-food challenge of McDonald’s and other chains that were the death knell of many family restaurants. But, in spite of his runaway success with hotels, Bill still embraced the food sector, too, by taking great risks with swift expansion and major acquisitions.
“Industrial feeding” was little noted and mostly unheralded at Marriott for four decades, but in a mere eighteen months in the mid-1980s, Bill, Executive Vice President Butch Cash, and CFO John Dasburg transformed it into a behemoth that was number one in the world. J.W. began an “industrial feeding” program in 1943 when Hot Shoppes took over the Naval Communications Annex Cafeteria in Washington, D.C. After the war, J.W. picked up contracts for cafeterias in non-defense industrial plants and other government agencies. Then J.W. moved into the health-care food field in the 1950s with D.C.-area hospitals.
Because most of the contracts were short-term, and businesses sometimes went back to self-catering, the small department grew slowly. When Bill became Hot Shoppes’ president in 1964, there were only twenty-three clients. He formed a new “Food Services Management (FSM)” division, but the business remained stagnant. Bill still sensed there was potential, so he hired more salespeople and recruited Daniel Altobello to run the division. Under his leadership, Marriott invested in new cafeterias in trade for longer-term contracts, particularly at universities.
Institutional food service wasn’t a glamorous business, and it wasn’t a big business at Marriott yet, so it received little attention from Bill. His interest began to grow in the mid-1980s when Gary Wilson advised him to get out of the theme park, cruise ship, and restaurant businesses and focus on hotels and food service. But the prospect of food-service acquisitions was far riskier than any of Bill’s previous purchases. “When we bought a hotel or a restaurant company, we were buying assets,” explained executive Bill Shaw. “But if we bought a food service company all we were buying was a filing cabinet full of accounts that could be canceled after we acquired the company. So, naturally, Bill and many of us had a lot of concern.”
The first dip into FSM acquisition waters was the purchase of Gladieux Corp., with 100 accounts and facilities at seven airports. It also had twenty-four turnpike restaurants, which, when added to the converted Howard Johnson toll-road restaurants, turned Marriott’s highway division into the largest in the world. Next, Marriott bought another industrial food business, Service Systems, Inc. The two acquisitions turned Marriott’s FSM division into a nationwide business with 1,400 clients in forty-five states—more than tripling its number of employees to 28,000. “It also gave Food Service Management critical mass at Marriott, transforming the division in just a few months from almost a footnote to the company’s second-largest business [after hotels] in sales revenue,” added John Dasburg.
Marriott’s new $615 million in annual food-service revenue had also pole-vaulted FSM to the number-three position within the industry. Only ARA Services ($800 million) and Saga Corporation ($700 million) were ahead of Marriott. In business, Bill was always driven to be number one. That meant he had to acquire either ARA or Saga. An ARA acquisition was nearly impossible because its top executives had just taken the company private. Saga, however, was a different story.
Saga had been founded in New York by three Hobart College seniors who persuaded the administration to let them run a dining hall at the school. They soon expanded to other colleges, and then to business and health-care food service, just as Marriott had done. Bill had met the founders more than once and thought, “Saga was a first-rate operation. My father liked them and I liked them. We were always interested in acquiring them.” But Saga wasn’t interested in being acquired. That changed by the beginning of 1986. On the face of it, Saga was a robust company, but internally it was torn by dissension between the CEO, Charles Lynch, who fancied himself as a turnaround artist, and a board that didn’t see the need for a turnaround.
Marriott saw an opening, but as chairman of the Saga board, Lynch had packed it with people who would not welcome a takeover. That meant Bill would have to engineer a hostile takeover, which was not in his nature. The board authorized Bill to open negotiations, and he flew to Menlo Park, California, to meet Lynch. It was Bill’s hope that he could convince Lynch to agree to a friendly merger, but Lynch had his back up. When Bill offered $30.50 a share, or $366 million, Lynch said he thought it was “too low” but he would present it to the board. They agreed to sell to someone, but not to Bill at that price.
Less than a week later, Bill raised the offer to $34 a share, for a total of $425 million. At that point, Saga solicited other bidders. Assessing the competition, the Marriott board raised its limit to $39.50 a share, or $716 million—the most expensive acquisition in Marriott history. But rather than risk being outbid, Bill kept the offer in his pocket until the hour that the Saga board was meeting to pick a winner. It was after the bidding deadline when Bill picked up the phone and interrupted the meeting with a call to Lynch.
“Hello, Charlie, this is Bill,” he began as Lynch put him on the speakerphone at the board meeting. “I have a couple of questions about your process.”
“Go ahead, Bill,” Lynch cautiously responded.
“Does the highest bidder win?”
“Yes,” Lynch agreed.
“If we submit the highest bid right now, are we the winner?”
Lynch asked him to hold a minute, and muted the phone.
There was silence for five or more minutes. When Lynch came back, they could hear emotion in his voice.
“Yes,” he affirmed. “If you give us a number now, and it’s the highest number, you win.”
“It’s $39.50, Charlie,” Bill said.
After that, there was total silence for a few moments, no doubt as Lynch counted the heads around the table.
“Well, Bill, you now own Saga Corporation.”
The Saga deal vaulted Marriott to the top as the largest food-service contractor in the world. When Saga’s approximately 920 accounts were added to the Gladieux and Service Systems accounts, as well as Marriott’s own contracts, FSM soared past ARA Services, the previous leader. It also made Marriott the largest public company in the D.C. area, surpassing Martin Marietta.