Chapter 22
There has seldom been a financial boom equal to the one that occurred in Japan between 1985 and 1989. Real-estate prices more than doubled throughout the country, pushing tiny condominiums to sell for more than $1 million in downtown Tokyo. From the beginning of 1985 to the Tokyo stock market’s peak on the last day of 1989, the value of shares traded was roughly $3.2 trillion—a bubble not seen previously except on Wall Street just before the 1929 stock-market crash.
Japanese investors were flush with cash and went abroad for the largest spending spree of their history, with America as their shopping mecca. They snapped up hotels and other real estate in Guam and Hawaii, then moved on to California, where they acquired one-fourth of the state’s bank assets. Nearly every large new office building constructed in Los Angeles was owned by Japanese investors, as were a few major Hollywood studios.1
Obsessed with golf, but having few golf courses available on their home islands in which to invest, Japanese investors gobbled up American golf courses at almost any asking price. One Tokyo tycoon paid $831 million for the famous Pebble Beach golf courses.2 All in all, according to the New York Times, “Japanese companies spent $77 billion on real estate in the United States, buying everything [during the boom] from the former Exxon Building to Rockefeller Center. No price was too high for the Japanese who were confident in the long-term value of the office buildings, hotels, golf courses and shopping centers.”3
Some of that money went to Marriott. After the American institutional investors, such as insurance companies, dropped out of hotel buying, and after the 1986 tax law change, which made limited partnerships harder to sell, “Japan became the last buyer,” Bill recalled. “They were buying everything in sight, and they were paying great prices. Why? Real-estate values in Tokyo were so astronomical that they looked at real estate in cities like Los Angeles and Chicago and New York and said to themselves, ‘These values are less than ten percent of what we’re paying in Tokyo. Americans don’t understand real estate. We do.’”
“Once you reached an agreement, they didn’t get as hung up on all the legal stuff as American investors,” then-CFO Bill Shaw added. “They were in for the long term. They were trying to build relationships with us, so they accepted lower initial returns on the deals than American competitors, so we did business with them, and it was very good business.”4
The first deals were pivotal refinancing deals: the New York Marriott Marquis in 1986 and seven hotels refinanced by Mitsui in 1987. A year after that, as part of the Los Angeles buying binge, Sumitomo—the world’s largest bank in total assets—paid $83.5 million for the new JW Marriott at Century City. Then Sanwa Bank, the world’s fifth-largest, financed the $131.5-million syndication of twenty-three Residence Inn hotels. In September 1989, Adachi financed the $400-million syndication of nine Marriott hotels in Europe. Two months after that, Mitsui Trust Bank signed a $112-million, exclusively Japanese, limited-partnership deal for four all-suite Marriott hotels.
The Japanese relationship that Bill worked the hardest to secure was with Nomura Securities International. It was the largest and most profitable financial institution in the world, managing assets of more than $430 billion. During meetings in Japan, in California, and at Marriott’s Maryland headquarters, Nomura expressed interest in a variety of Marriott hotel purchases as well as the Marriott retirement communities. Nomura first paid $196 million to refinance the Atlanta Marriott Marquis. Then, in April 1990, Nomura agreed to purchase the San Francisco Marriott for $330 million. It was a big debt Bill was anxious to get off Marriott’s books, so he was elated. Although the Tokyo stock market had been declining since the first of the year, “it didn’t seem to bother Nomura because they were so big,” Bill said. “I had no reason to believe they would not close the deal.”
Marriott was the world’s largest operator of hotel rooms, primarily because of the development explosion in the late 1980s, which resulted in nearly two Marriott hotels opening every week. The company built and opened ninety hotels in 1988, another eighty-eight in 1989, and another one hundred in 1990—at which point they were managing 639 hotels. Marriott became one of America’s top ten real-estate developers. One out of every four hotels built in America was a Marriott.
That kind of growth produced a dangerous hubris within the company ranks—the idea that if they built a hotel, they could always sell it and retain a lucrative management contract. Top executives felt invincible. TV commentator Daniel Schorr even suggested that the way for President Ronald Reagan to balance the budget would be to “sell the White House to the Marriott corporation” so they could manage it for a profit.5
Failure was unthinkable in the general corporate culture, but Bill was growing concerned. During a ceremony at Camelback celebrating Marriott’s rapid growth, Bill realized that “I wasn’t entirely comfortable with what I was seeing and hearing. What if the market dried up? But everyone else in the room seemed to be so bullish and positive about our business that I set my worry aside and joined in the celebration. After all, every sign at the time was positive. Our hotels were filling up as fast as they could be finished, and capital was plentiful. Why not just keep going?”
The biggest issue was the company’s debt load. At the end of 1986, Marriott’s debt-to-equity ratio was 1.7 to 1, meaning that the company owed $1.70 for every $1 in assets. Considering 2-to-1 a good ratio, Wall Street analysts were very comfortable with Marriott’s bottom line. But by early 1990, the debt-to-equity ratio was 7.4 to 1, which made Wall Street analysts nervous. Marriott’s long-term debt had climbed to $3.3 billion, which cost the company at least $300 million a year in interest. If the company made a profit lower than its annual interest payments, it would be on the edge of bankruptcy.
One bright light was the growth of the company’s golfing ventures, which prompted Bill to create a new Marriott Golf Division in April 1990. Since developing its first golf course at Camelback twenty years earlier, the company had constructed fifteen more resort courses in the U.S. and Bermuda. Marriott was the country’s largest golf-course operator, with 800,000 rounds being played on its courses annually.
Heading the new golf division was Roger Maxwell, the company’s first pro and golf shop operator at Camelback. Maxwell negotiated with golf legend Jack Nicklaus, who wanted Marriott to manage fifteen public golf courses he was planning to build. Bill flew to Florida to meet with the “Golden Bear” himself. Entering Nicklaus’s Palm Beach office, Bill spotted a hand-embroidered pillow that, according to the Miami Herald, “shattered any misconceptions that Nicklaus was just another dumb jock.” It read: “Happiness is a positive cash flow.”6
On the home front, when Bill ramped up his work schedule after his heart attacks, Donna urged him to get additional office help. Their son John, who had been working at headquarters in strategic planning, marketing, and financial planning, was made Bill’s executive assistant on a temporary basis to help reduce the load.
Shortly after the stock market crashed on Black Monday, October 19, 1987, a Forbes writer had visited Bill in his office and found him surprisingly calm about the situation. He noticed several seascapes on the office walls by Depression-era British artist Montague Dawson. Bill’s favorite was a majestic ship plowing through a storm-tossed sea. “We’re in uncharted waters,” Bill reflected, looking at the painting. “But we’ve always been able to come through recessions and continue to grow. The chances are that the next downturn, whenever it comes, will prove no different.”7
But it was proving very different by late spring 1990, as Marriott stock dropped to $22 a share—a 52-week low. “Lodging is overbuilt, the real-estate business is in the tank, and financial markets are tight. The challenges are great. However, we have been through down cycles in the past and have emerged successfully,” Bill reassured his senior managers.8
Bill wasn’t as sanguine as he appeared, however, and his concerns began to crop up in his public remarks. He was not usually a fan of modern art, but he agreed to head a fund-raiser for the privately held Phillips Collection museum in downtown D.C. He found himself absorbed with a painting by surrealist Joan Miro called The Red Sun. He told a crowd at the event, “My interpretation of this painting is that of a person whose head and heart are detached from the body with the stomach in turmoil—a portrait of the end of the day for a CEO in these times.”9
There was also a reference in a speech to his marketing managers regarding the lightning victory of General Douglas MacArthur at Inchon, North Korea: “MacArthur was blinded by his astounding victory. He became more arrogant than ever and wound up being fired by President Truman. The Chinese would not have entered the war if he had not pushed so far forward to the Chinese border and provoked their counterattack. General MacArthur’s arrogance cost him his job and cost America thousands of lives in the prolonged Korean War,” he concluded. His message to Marriott’s marketers was, beware arrogance. “We cannot let it blind us to the current climate. This is a real competitive war we are in.”10
Having foreseen the oversupply of hotel rooms years before, Bill began shutting down full-service hotel development in 1988, with the San Francisco Marriott being the last big one built. However, believing that Americans would always use moderate and economy hotels, even in a recession, Marriott did not begin curtailing Courtyard, Residence Inn, and Fairfield Inn development until April 1990. At that time, Marriott cut the projected construction budget for 1991 from $1.2 billion to $900 million. The company also laid off forty headquarters employees, an almost unheard-of move for Marriott.
In July, the Japanese came to the rescue and bought fifty Fairfield Inns. But Nomura was still dragging its heels on closing the agreed-upon deal to buy the San Francisco Marriott. Bill took off for a much-needed vacation at Lake Winnipesaukee and returned home just as war broke out in the Middle East.
On August 2, 1990, Iraqi despot Saddam Hussein invaded and occupied Kuwait with 100,000 troops. Oil prices skyrocketed, and American troops entered the conflict.
Within a few weeks, the Tokyo Stock Exchange crashed. The Japanese had been referring to their real-estate and capital boom as Baburu Keizai (The Bubble Economy). They knew all bubbles burst, but no one predicted how spectacular the crash would be. Tokyo was the world’s largest financial market at the end of 1989, but it fell behind New York in August 1990 and kept on free-falling. Occasionally, it would rebound a little in what one security analyst called a dead-cat bounce: “Even a falling dead cat will bounce, but not far and not for long.” A stunning $2.25 trillion of Japanese capital vanished in just nine months.11
America was already in a recession, but these factors deepened it. Most lodging companies were already in serious trouble, and that was made much worse by swiftly declining tourist and business travel and the Tokyo exchange crash. In all, more than 300 hotels went broke in 1990. “I feel like an architect watching Rome burn,” lamented Hyatt chief Darryl Hartley-Leonard.12
Bill recalled: “We got hit with three things back-to-back that were out of our control—the real-estate recession, the Gulf War, and the Japanese crash.” September began the first of many dark months for CEO Bill Marriott. There was a very real possibility that the company would not survive.
On September 18, the nation’s second-largest hotel company, Prime Motor Inns, Inc., filed for bankruptcy. “The idea of Marriott and bankruptcy had never been said in the same breath until Prime Motor Inns went broke,” Bill said. “We were doing the same things they were. We were building and selling properties. We were overleveraged like they were. We couldn’t sell our hotels just like they couldn’t. Everybody was saying, ‘Marriott’s going to be next.’”
Bill went through a reassessment of where the company stood, considering as well whether he was up to the challenge. “Do I have enough to get through this?” he recalled asking himself. “Am I going to push myself into this thing and get done what needs to be done? Is my health going to hold up, or am I going to have another heart attack?”
On Monday morning, September 24, Bill convened a meeting with his top executives. Mincing no words, he said, “We’re in very bad shape financially. If we don’t work together, I don’t know whether we’ll be able to make payroll in a month. This is the most serious situation this company has ever had, and we may wind up going out of business. We have to stop building. We have to cut costs wherever we can. We have to freeze salaries for everyone but the hourly workers, who can least afford it. We have to cut some of our salaries, including mine. We have to put off annual bonuses. And we have to lay off more employees in a couple of divisions. I’m not happy about any of this. I’m sure you aren’t either. But we have to do this if we’re going to survive. We have to do this together, or we will fall together. I personally believe we will come through this and rise together.”
That afternoon, Standard & Poor’s (S&P) credit rating agency announced that Marriott was being placed on their CreditWatch “with negative implications.” On Tuesday, the second of the Big Three rating agencies, Moody’s Investors Service Inc., said it was reviewing Marriott’s long-term debt with an eye to lowering its A- rating.
Attempting to halt any further slide, Bill went public that afternoon with his austerity plan. On Thursday, the company issued its third-quarter profits report, revealing a 57 percent drop compared to the previous year. Bill announced a further cut in Marriott’s projected capital expenditures in 1991 to $650 million, compared to $1.3 billion in 1990. Marriott shares dropped to $8.37½ in the first week of October. That meant the market value of the company had fallen from $3.98 billion to $861 million in less than a year.
To make matters worse, short sellers descended on Marriott en masse, like a flock of vultures.
Short selling is a legal way for investors to benefit from a decline in a stock’s price. Essentially, they borrow the stock, wait for it to lose value, and then buy the stock at a lower price, turning the shares over to the lender and pocketing the difference. For example: a short seller borrows 1,000 shares of Marriott stock at $10 a share from an investor pool, promising to pay the lender or replace the shares in a certain amount of time—say, thirty days. If the stock drops to $5 a share in that time, he buys 1,000 shares for $5,000, signs them over to the lender, and pockets the $5,000 profit. (Of course, if the stock goes up in those thirty days, the short seller stands to lose a bundle of money.)
The same speculators who made tens of millions of dollars selling Prime Motor Inns short began concentrating on Marriott. “By late September these market bears have had a field day with Marriott, selling its stock short with a vengeance,” a business magazine noted. According to New York Stock Exchange data, Marriott had become one of the top five targets of short sellers. An unhealthy 14 percent of its shares was sold short against an exchange average of less than one percent.
The best way the short sellers could make high profits was to tear down the Marriott image at every turn. “These people have a huge vested interest in spreading rumors on the market,” explained Shaw. “They were really hitting us hard in the press because they wanted us to go down. We were getting a lot of bad reports from the hue and cry they were stirring up like Chicken Little: ‘Marriott is going to go bankrupt! Marriott is going bankrupt! Marriott is falling!’”
Bill urged calm in an October 5 letter to his management team. Still, the company continued to slide in public perception. Four days after Bill’s encouraging letter to executives, Duff & Phelps became the first rating agency to downgrade Marriott’s credit rating. The other two, S&P and Moody’s, soon followed. Marriott debt was still considered investment grade (not “junk” status), but the triple punch signaled the possibility of worse things to come.
The only thing that could sink the company in a single day was looming on the horizon. During the crisis, Bill had to draw down the entire $1.7-billion credit line he had obtained earlier from a three-bank partnership. The drawdown produced a new $1.7-billion loan, called a “revolver,” meaning the banks had to decide by October 18 whether they were going to roll it over or call for the full debt to be repaid. If they thought the company was going to fail, they might call in the debt and expect to recover pennies on the dollar.
While Bill was in Mexico, presiding over the opening of hotels in Cancun and Puerto Vallarta, the banks agreed to renew the loan. CFO Bill Shaw said the only reason the banks did that in the midst of a full-blown recession was “because of the good will Bill Marriott himself had developed with those bankers over the years—and the faith they had in him personally.”
At this same time, Bill was released as longtime president of the Church’s Washington D.C. Stake. His farewell remarks focused on the importance of developing “spiritual reserves of faith” as well as “financial reserves sufficient to give you a cushion that will allow you to come through whatever economic storms you can foresee. As we continue to strengthen our spiritual and financial reserves we will develop a more positive mental attitude and more confidence in our own abilities to deal with any crisis that confronts us. Most importantly, a positive mental outlook comes from a sure knowledge that we are all sons and daughters of God. If we believe this we will also believe in His abiding love for us and His strength in helping us through tough times.”13
Then he was off to Japan with Bill Shaw for make-or-break meetings with Japanese investors—especially Nomura, in order to discuss the delayed completion of the big-ticket $330-million San Francisco hotel deal.
“If we’d have had San Francisco open in April instead of October of 1989, we’d have been okay,” Bill said. “The next spring, it was still for sale, and we had good offers from New York banks, but Nomura beat their pricing.” Throughout the summer, Shaw received reassurances that the Nomura deal was still on. As the crisis escalated in the fall, the incomplete Nomura–San Francisco deal became the media’s preferred symbol of proof that Marriott had lost its mojo and was failing. Hence the trip to Tokyo to salvage the deal and the company’s image with it.
“Bill didn’t want to go,” Shaw recalled. “He never liked to negotiate, because he doesn’t like conflict. But this was worse because it was so important. Both of us were frustrated by the inscrutability of the Japanese, but he was willing to go because it was time to sit down and force the issue: ‘Is this going to happen or is it not going to happen?’”
Bill and Donna arrived in Tokyo on Saturday, November 3. On Monday, Donna flew to Hong Kong, where Debbie, Ron, and their five children were living and Ron was managing the Hong Kong Marriott. Bill was now free to make the rounds with CFO Bill Shaw to “Lenders Receptions” and private meetings with various potential buyers. Shaw recalled, “They weren’t real direct when we talked with them. They would always say ‘maybe’ about this deal or that. They wouldn’t say, ‘Not very likely’ or ‘This will be difficult.’ We tried to understand and finally realized what they were really telling us was that, with the stock-market crash, Japan was only committing money to Japanese assets. It became Japan for Japan: ‘We’re going to take care of our own.’”
Then came the last meeting, with Nomura. “It was so frustrating,” Bill said. “I couldn’t tell what they were thinking and what they were planning on doing. They had become so slow to move in any direction. There was no clear signal that they were going to stop the San Francisco deal. But there was no signal we were going to close it soon. Since this came after the lukewarm talk with all the other Japanese investors, it was the final straw. I felt it was the final straw for Marriott.”
He flew to Hong Kong to join his family, and they all went out on a boat in the middle of Victoria Harbor. “We were showing Bill and Donna the harbor and the beautiful skyline,” said Ron. “But he wasn’t talking. He was more detached and introverted than he had ever been. He had the weight of the world on his shoulders. He was thinking about all those investors and shareholders, small and large. He was thinking about his 230,000 employees. Were they going to have a job in six months? Was their pension going to be wiped out? Everybody was relying on him, and he felt it.”
Bill shared the depths of his anguish with Debbie during that trip. She recalled, “Dad was lying on the couch in his room because of jet lag. He was so tired. I was worried about him. I thought he was going to have another heart attack because he was worrying so much.”
Debbie started to say something, and her father began to cry. “As an adult, I have only seen my Dad cry like that once, and it was gut-wrenching. Between the tears, he said, ‘I don’t know what to do. I could lose the business.’ Grandpa had always lectured him about keeping the company out of debt. He was thinking about that, because, after more tears, he said, ‘I have disappointed my father so much. I am losing the company. He’s up there looking at me right now and I’ve let him down.’ And then he asked a heartbreaking question, ‘What have I done?’”
• • •
The massive Marriott hotel-building machine had ground to an abrupt halt in September 1990. Shaw said the decision to put on the brakes was a bold one. “I don’t think many people at the top of many companies could stop like we did that month. It was a great credit to Bill that he did so. Some of our own executives complained privately he had gone too far—that he had overreacted. But he was close enough to the details of our business to know it had to be done.”
Bill’s edict was unequivocal: if a project hadn’t broken ground, it was put on hold. There were attempts to move some dirt around to simulate a ground breaking, but that didn’t get past Bill. “He checked every project to see if somebody was fudging it,” said Shaw. “Nobody with a favorite project they were trying to continue after the ban got anything by him.” Hotels that were nearly finished—all but the interior work—were allowed to continue, but other construction projects were boarded up.
Two unfinished full-service hotels—in Gaithersburg, Maryland, and Crystal City, Virginia—were frozen in place. The Washington Post reported that the two construction sites displayed “all the architectural panache of postwar Baghdad.”14 Just as stark were the steel skeleton towers of The Jefferson, the senior-living community in Arlington, Virginia. By the time the companywide construction halt was called, the two twenty-story towers were one-third finished. The company had already received 2,205 refundable deposits of $1,000 each from enthusiastic seniors, including Shaw’s own mother. Marriott executive Brian Swinton assigned a lone security guard to protect the project with a unique secondary task: “I asked him to go around the site every day or so and bang on something with a hammer so we could keep our construction permit active.”
The mandate came from the top to run a much leaner operation without compromising quality. That meant reducing excess inventories and finding extra cash wherever it might be. In flush times, the measures would have been nickel-and-dime stuff, but now they were crucial. For example, Bill found out that Host airport restaurants were routinely keeping a couple thousand dollars in their cash drawers overnight. Shaw directed that cash go to the bank at the end of the day, where it would draw interest and be used for other expenses. Bill calculated, “We had hundreds of these restaurants, so we picked up millions of dollars doing stuff like that. We just found cash all over the place. . . . It forced us to discipline ourselves.” This “cash sweep” alone resulted in a savings of working capital by more than $100 million in the first few months of the crisis.
Another cost-saving move was to freeze or reduce the salaries of Marriott’s middle and top managers. Hourly workers, such as waitstaff and housekeepers, who could ill afford a cut in their salaries, were exempt. To set an example for the people at the top, Bill took a pay cut of 27 percent. Approximately 1,100 senior executives had their pay frozen for a year. Annual bonuses were delayed forty-five days, and some executives (including Bill) didn’t get them at all. Middle managers had their salaries frozen for six months. Other administrative and clerical employees saw a three-month freeze. Surprisingly, there was little complaining, according to Bill.
In his corporate book, The Spirit to Serve, Bill described the most difficult measures as the layoffs in the hotel-development offices when there were no longer any hotels to develop: “We had been developing about 100 new hotels a year in the latter half of the 1980s. There truly was nothing comparable in the American hotel industry, or most other industries, for that matter.
“Almost overnight, we had to close down the assembly line. Marriott had never in its 63-year history faced the prospect of letting go of two entire departments. . . . The cornerstone of our corporate culture has always been: ‘Take care of your employees, and they’ll take care of your customers.’ Laying off a substantial number of people who had worked hard to contribute to our success felt like a betrayal of that philosophy.”15
The A&C Division was slashed from 1,200 to 200 employees. Recalled Jack Graves, A&C’s highly effective chief for many years: “This was the worst time of my life, terminating all these people. But I saw it through. The last man I fired was myself. There was no need for an executive vice president to manage nothing, so I retired.”
Bill was deeply and personally involved in this wrenching part of the crisis. “Dad hated downsizing,” said Debbie. “This was real grief for these people losing their jobs—good people, loyal people, people whom he had known for a long time. It just killed him to do that. Someone would come into his office and say, ‘I’ve loved working for you for seventeen years, and now I’m out?’ The whole thing was awful.”
To mitigate the pain, Marriott poured money into generous severance benefits, as well as an employment service, helping with résumés, job searches, and interview coaching. When the bloodletting was finally over in late 1991, the company had placed more than 90 percent of its laid-off workers who had not taken early retirement. In hindsight, construction head Graves said the dark days ended up being “the best time for Marriott because it gave everybody a chance to reflect on where we were going and where we had been. We became a better, more lean and more efficient company for the long haul.”
While the cash conservation and cost-cutting measures helped, Bill continued his search for asset buyers and new financing sources. He approached at least one unusual source—the Coca-Cola Company—and expertly manipulated the competition between Coke and Pepsi to his advantage. The two cola companies regularly engaged in pitched battle for corporate contracts. Marriott had been a loyal twenty-year customer of Coca-Cola, serving Coke and not Pepsi at its restaurants in 639 hotels, at its airport and thruway restaurants, and for 2,300 food-service accounts in hospital and university cafeterias. Bill figured it was time to call in a favor. His request to Coke for help was unusual, but it was an expansion of a hidden cola company practice of providing “marketing allowances” in the form of large cash advances to its best customers.
“I called Coke and I said, ‘We’re going to make it but we really need cash. Are you guys willing to step up and help us?’” Bill recalled. Coke’s senior vice president Charles S. Frenette derided the request in an internal company memo, saying Bill was asking Coke to become a banker. A few days after the request, Bill was notified that Coke wouldn’t help, which became a cold-shoulder decision Coke has regretted for decades.
Somebody tipped off Pepsi CEO Wayne Calloway about the Marriott-Coke dustup, and Calloway saw a big opening for Pepsi. Bill recalled that just two days after Coke’s refusal to help, Calloway “called and asked me, ‘How much do you need?’ I said, ‘At least $50 million.’ He said, ‘You’ve got it, but we want your business.’ I agreed.”
Marriott was quiet about the deal, but it leaked to the press, and Bill didn’t mind. He was furious with Coke, and the public message was abundantly clear—Coca-Cola didn’t view loyalty as a two-way street. “So every time Coke has come back trying to get our business, I’ve said, ‘Good-bye, guys.’ Pepsi got it all,” Bill said.
In spite of small victories such as the Pepsi deal, the financial crisis was keeping Bill awake at night. Donna feared the stress would bring on another heart attack. “I had never seen him so distraught and disappointed with himself. He wished he was smarter and could have foreseen everything. He told me, ‘Somebody might take us over and I’d be out.’ You don’t know what’s going to happen to a company in a takeover, and he could see all the good people he felt responsible for getting fired. He really thought it might be all over.”
Bill had reason to be worried about a hostile takeover. In 1984 and again in 1989, the board had rewritten the corporate charter to include so-called “poison pill” provisions to prevent a takeover. One of the reasons for the board’s regular multimillion-share buyback of Marriott stock was to prevent anyone else from accumulating enough to seize control of the company. The fact that the Marriott family owned a quarter of the stock also was a healthy deterrent to corporate raiders.
But by November 1990, the company was vulnerable to moves by any determined corporate raider with a pile of cash. Richard Rainwater, the financial genius who had made the Bass family billions, called Bill and said he was considering “taking a position” in Marriott with the stock at such a low price. Bill politely told Rainwater to back off, and he did; he was not interested in a hostile takeover.
Another call came from Charles Brady, the brains behind the spectacular growth of the Atlanta-based Invesco investment firm, which was then managing $21 billion in stocks and bonds for more than 200 clients. Invesco wanted to buy a substantial amount of Marriott stock, but before he filed the SEC report signaling this intent, Brady wanted to assure Bill that he wanted no more than 15 percent of Marriott and would not expect a seat on the board. The board said no, and Brady stepped away.
A third foray was made by an old friend. Gary Wilson flew from California in mid-November and met with Bill. He explained that he and Al Checchi had put together a group that wanted to buy into Marriott in a big way. Ever the deal-maker, he undoubtedly thought he could help Bill at the same time as he helped himself. Bill was offended, however. “Instead of coming in and saying, ‘What can I do to help you?’ he came in and said, effectively, ‘Do you mind if I profit off of your misfortune?’’’ As soon as Bill told Gary his overture was unwelcome, Gary backed off, and the two remained friends.
While Bill had been able to swiftly deflect all suitors, the most fearful challenge occurred the following January, 1991, when the stock was selling at $10.50 a share. A Malaysian group offered a substantial loan to Marriott, which could quickly be converted to Marriott stock at the group’s discretion. The company was Genting Group, a global resort and casino operator with pockets deep enough to make a raid on Marriott. Shaw knew the loan offer was a ruse to attempt a takeover, and he declined. The group left unsatisfied, and Shaw hoped that would be the end of it; it wasn’t.
Two days later, one of the company’s lawyers called and reported that they would file with the SEC that they were going to buy Marriott stock, possibly more than 20 percent. “Bill and I knew this was a hostile takeover attempt, and a serious one,” Shaw recalled. The group most likely intended to turn Marriott into a gaming company, selling off other lucrative parts of the corporation. The most certain way to stop them was to drive the stock price up to the point where it would be too expensive for Genting—or anyone else—to take a run at Marriott.
Bill and Shaw redoubled their efforts to find additional loans on reasonable terms. “I’d never been through anything like that in my life. We spent day after day, night after night with the banks,” Shaw recalled. “The banks were always willing to lend us more money. But they would have loaded the loans with requirements and restrictions. It would have been like working for somebody else. To Bill, agreeing to those kinds of loans was equivalent to losing his company, because it would mean losing his flexibility to run it.”
A few friends tried to help Bill get a fair loan—including Jon Huntsman, who was serving on the board of a major U.S. bank. “I think it was the scariest time of Bill’s life,” Huntsman observed. “My company was going through a tough time as well during that recession, but I wasn’t as worried about losing the company because I had started the company. It’s worse if you’re Bill Marriott and possibly losing the business your father founded. He pulled every lever he could possibly pull. I went to bat for Bill with the bank where I was a major voice on the board, but it did no good. They were convinced the Marriott corporation was going down, and didn’t want to rescue a sinking ship.”
Finally, at the end of January, a three-bank consortium led by Citibank offered a $400-million credit line at reasonable rates, with an initial bridge loan of $150 million. The banks recognized Marriott had a liquidity problem, not a solvency issue. It was a huge vote of confidence and proved to be the turning point for the company. The credit line was announced on February 1, and it met with universal acclaim on Wall Street. Marriott was one of the heaviest-traded stocks on the New York Stock Exchange that day, swiftly rising 26.9 percent, to $13 a share.
There was still a hard road ahead, but Bill suspected correctly that the worst was finally behind him. He had been in the fight of his life and was bloodied. “In the military, the million-dollar wound is the one that gets you a Purple Heart and sends you home. It’s not bad enough to kill you,” reflected former Marriott executive Mike Hostage. “When Bill went through this, it probably seemed like the wounds were going to be fatal. Instead, he got through with a Purple Heart. What doesn’t kill you makes you stronger.”