HB Korenvaes Investments, L.P. v. Marriott Corp.
Delaware Court of Chancery
1993 WL 257422 (1993)
- Written by Eric Miller, JD
Facts
Marriott Corporation (defendant) transferred its profitable hotel businesses to a new subsidiary, Marriott International (International), leaving Marriott with more debt than revenues. Marriott proposed a distribution of International stock to all Marriott common stockholders as a special dividend. Marriott’s certificate of incorporation provided that in the event of a special dividend, the conversion value of its convertible preferred stock must be preserved through a price adjustment. A group of four institutional investors (the investors) (plaintiffs) alleged the special dividend was so large that it would reduce Marriott’s net worth to the point that Marriott would have insufficient equity to preserve the value of the preferred stockholders’ conversion rights. The investors brought suit against Marriott in the Delaware Chancery Court to enjoin distribution of the special dividend. However, credible valuations of Marriott’s business value set forth a range of $551 million to $830 million, and the value of the preferred stockholders’ right to convert to common stock was less than $197 million on the last day of trading before the special dividend was announced.
Rule of Law
Issue
Holding and Reasoning (Allen, J.)
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