Marriott To Buy Back Stock From Small Shareholders Thousands Bought One Or Two Shares To Get Room Discounts That Have Been Eliminated

Marriott International Inc. plans to repurchase stock from small shareholders, many of whom made their investments to qualify for a hotel discount program that the company eliminated.

Marriott, based in Washington, D.C., was one of the only lodging companies in the nation that offered shareholder discounts at its hotels. The bargains included 50 percent off regular rates at Marriott Hotels - with a 21-day nonrefundable advance purchase - and 10 percent off the regular weekend prices at Courtyard Hotels.

The company canceled the program Jan. 1 after finding many people bought one or two Marriott shares just to get the reduced rates. Some 59% of Marriott’s investors, or about 36,000 people, owned a total of just 95,000 shares. Now, providing annual reports and other services to these small accounts proves inordinately expensive, company officials said.

Until recently, the discount program didn’t harm Marriott because of a downturn in the lodging business in which rooms were plentiful and customers scarce. Now that the industry’s booming, Marriott doesn’t want to discount rooms that could be easily rented at regular rates.

“Based on the evaluation we did, we concluded (the program) wasn’t feasible or cost effective,” Marriott spokesman Nick Hill said. “With some 60,000 shareholders, it became difficult to provide enough discounted rooms to satisfy the demand.”

Now that these discounts are over, many small shareholders no longer have any reason to continue holding their “odd lots,” Wall Street parlance for stakes of less than 100 shares. However, the same investors are reluctant to sell their stock because of the expense.

“Marriott believes that many odd-lot shareholders have retained their shares simply to avoid the disproportionately high brokerage fees connected with the sale of odd-lot amounts of securities,” the company said in a May 11 letter to the Securities and Exchange Commission.

“Indeed, upon learning that the discount program had ended, numerous shareholders have contacted Marriott to inquire whether they could dispose of their shares without incurring such fees,” the letter said.

Marriott’s solution is to buy back the small stakes. In fact, the company is even offering a bonus to those who participate in a coming odd-lot repurchase program.

Under this program, Marriott will ask shareholders to send in their stock and group together the shares it receives each day. Those who submitted the shares will receive payment based on the stock’s closing price for that particular day plus a bonus of as much as $1 a share. The shareholders will also avoid brokers’ fees because they are dealing directly with Marriott.

Marriott wrote to the SEC to make sure that the odd-lot program didn’t constitute a tender offer under SEC regulations that would have triggered certain requirements. The SEC granted Marriott an exemption from the tender offer regulations in a ruling last week. The program is expected to last for 30 days once it begins. Marriott will retain an option to extend it for an additional month.

Marriott stock traded Thursday at $35.50.