Spin-off of Marriott Vacations set
The spin-off of Marriott Vacations Worldwide (VAC) was approved by the Marriott International (MAR) Board of Directors yesterday, October 25. The record date for eligibility to receive the spin-off securities has now been fixed at close of business November 10 and the distribution date at November 21. The spin-off ratio has also been finalized at 1 for 10, that is, for every 10 share of MAR owned as of the record date, shareholders will receive 1 share of Marriott Vacations Worldwide (VAC).
Interestingly, it looks like the spin-off could be effected before the announcement of 3rd quarter earnings. Remember, the Form 10 states that VAC will recognize a write-down of $324 million in the 3rd quarter, but this doesn’t yet show up in the Form 10 pro-forma financials. I’m not sure when VAC will report earnings but I can hardly imagine a less propitious set of circumstances for a spin-off.
VAC shares should begin trading in the ‘when issued’ market around the record date. In a prior post I wrote that VAC shares might trade in the $3-$9/share range (but who really knows?). One might think that the shares should begin trading at the top end of the range and then possibly take the post spin-off plunge. Mr. Market is really unpredictable, though, so you never really know what will happen even if this really looks like a classic ‘unwanted baby’ story.
How this plays out should be interesting and even possibly an investment opportunity, so do your homework!
Long Term Value Blog 
Marriott has said that the spin-off “would result in the recognition over a number of years of several hundred million dollars of cash tax benefits to Marriott relating to the value of the timeshare business.” This may result in a higher valuation for the parent’s shares.
This “spin off” is going to cost the investors the several hundred million. Stock sold prior to distribution on 21 Nov. will not receive Vacation Club shares. WTF? Share price of MAR on 21 NOV going to tank in my belief.
Dan, I’m not sure exactly what you mean. All spinoffs do ‘cost’ something to shareholders (the one-time cost of the filing and corporate reorganization as well as the ongoing costs of 2 public companies rather than one), and it can be significant. When MAR goes ex-distribution I anticipate the market price of MAR shares will fall by the then value of VAC shares distributed so that individual holders of MAR today will hold 2 securities with approximately today’s MAR value. Given the arbitrage that goes on with when-issued shares the price reduction of MAR shares should be about $1.70, i.e. the value of the VAC shares received per MAR share held. Actually I think the MAR shares should do fine after the spin-off. My real question is the current valuation of VAC. I anticipate that, if history is any indicator, they will ‘tank’ after the spinoff. As I wrote in my earlier post I don’t think VAC shares deserve the kind of valuation they are getting today. In fact, they might be a good short candidate. But who am I to say?; only time will tell.
JAY, Thanks for your response.
After trying to digest the report and looking at all the risk factors starting on page 19 I too starting thinking of the current “value” of VAC. I agree with you, I believe the shares will “tank” after the spinoff, leaving the stockholders holding the bag. My wife was a VP with Marriott and we have gone thru this process before when they spun Host off. History will probably repeat itself. We know most of the “players” with VAC. All have been there quite awhile and are competent but I think the deck is stacked against them as the time share business is in major trouble.
I hope they succeed and prove me wrong but they have a long road ahead.