SPINOFFS AND WEALTH TRANSFERS - THE MARRIOTT CASE

This paper examines changes in bondholder and shareholder wealth resul ting from the 1993 Marriott spinoff. It documents a wealth transfer fr om bondholders to shareholders and a decline in the total value of the firm following the spinoff announcement. Subsequent modifications to the spinoff plan reduced the bondholders' loss, but the value of Marri ott's notes and debentures remained $194.6 million below their pre-ann ouncement level on the distribution date. Industry-adjusted shareholde r gains during the same period were only $80.6 million. Transaction co sts and inefficiencies resulting from the spinoff explain much of the decline in the total value of the firm.