Like Garfield, superstar cat of the comics, Marriott Corp. is having a snack attack.
That's the explanation for a string of extraordinary announcements out of Marriott's headquarters in Bethesda over recent weeks, including on-again, off-again talks about acquisition of the Gino's fast food restaurant chain and a final agreement last week to buy Host International Inc., a California-based airport bar and food specialist.
If both deals go through and the local company's normal sales growth continues at historic levels, Marriott stockowners could hold a piece of a $3 billion company by the end of 1982.
The only other Washington businesses with annual revenues at that level are Martin Marietta Corp., a diversified industrial firm that is a neighbor of Marriott in Bethesda; Chesapeake & Potomac Telephone Cos., which broke ground last week for a new regional headquarters near Silver Spring story on page 14 and the privately owned candy giant, Mars Inc. of McLean.
In an interview last week, Marriott President J. W. (Bill) Marriott Jr. emphasized that the decision to buy Host and the effort to buy Gino's do not represent any shift in corporate strategy for the current decade. In the late 1970s, Bill Marriott had reordered his company's priorities and put hotel expansion at the top of his list.
His father and company founder J. Willard Marriott started with a root beer stand and the major emphasis of the company under his stewardship had been restaurants and food service, including airline catering.
Son Bill was around when the company opened its first hotel in Northern Virginia and that business captured his imagination. Marriott now is the fastest-growing major hotel company in the world: 24 hotels with 11,000 rooms were opened this year, the most recent last week in Westchester County north of New York City. In the next two years, Marriott will add hotels with another 15,000 rooms, including a flagship Washington unit next to the National Theatre on Pennsylvania Avenue.
"But we always said we'd look at any opportunity in our lines of business, if they became available," Marriott said of Host and Gino's. Marriott said that for the decade ahead his company should get half of its revenues from hotel operations compared with 25-30 percent from catering to airline travelers and about 20 percent from restaurant operations, mostly at fast-food outlets and coffee shops.
Host and Gino's fit particularly well into the last two categories, as Marriott explained in his first detailed discussion of acquisition negotiations that have occupied much of his time in the past month.
The deal for Host was cemented on Dec. 3, when Marriott beat out Hong Kong-based DFS (for duty free shops) Group Ltd. with a bid of $31 in cash for each of Host's 4.8 million shares. The final offer from DFS was $29.25 a share.
Although the Host-Marriott agreement called for an apparent payout of $149 million by the Bethesda company to buy stock in the Santa Monica, Calif., firm, the deal is somewhat more complicated and Marriott actually will pay about $30 million less. In any event, Marriott said last week, his company's real interest in Host is its airport terminal food service business, which accounted for about 80 percent of Host's $357 million in sales last year.
"I'm convinced that air traffic will resume . . . that volume will start to pick up in the fall of 1982 . . . we still have the lowest fares in the world and new airlines are keeping fares reasonably low," Marriott asserted. If he's right, that's good news for his company because it is a major supplier of in-flight food services to airlines in this country and overseas.
And the addition of Host will make Marriott a major purveyor of snacks, dinners and drinks to airline travelers while they wait for departures. Host runs food services in such big airports as Los Angeles International, San Francisco, Baltimore/Washington International, Seattle, Detroit, Minneapolis and John F. Kennedy International, LaGuardia and Newark in metropolitan New York.
Host also operates four airport hotels and they will become Marriott-managed businesses when the acquisition is completed, for another natural fit into Marriott's overall business.
Finally, Marriott will pick up about 50 dinner-house restaurants that operate in California and metropolitan Washington under such names as Charley Brown's, Casa Maria, Barclay's, Carnegie's and Phineas. Some of these operations will seem familiar to Marriott stockholders because most of the area dinner houses were started by 1arriott but later sold to Host.
"We plan to keep them as long as they are making money and operating profitably," said Marriott, when asked if he plans to sell the dinner houses one more time.
There are several pieces of Host that Marriott won't buy, including duty-free retail shops at airports and chicken fast-food restaurants. Under a final agreement with Host, signed by lawyers last week, Marriott agreed to honor two options previously granted by Host to DFS Group.
These options will permit DFS to buy 875,000 unissued shares of Host stock at $29.95 apiece (and hand them over to Marriott in exchange for $31 a share, a rather quick gain) and to acquire the duty-free retail shops of Host as well as the inventories of merchandise for about $30 million. That means that Marriott actually will pay about $120 million in cash to buy Host, not $149 million.
In addition, two other deals in the works for some time have been approved by Host and will take place prior to Marriott's acquisition: Host will sell 76 fast food properties in the Houston area to Heublein Inc.'s Kentucky Fried Chicken subsidiary and 71 remaining fast-food units (also specializing in chicken) to an officer of Host.
Marriott said of Host that "we've been looking at it for a long time because it fits so well with what we are doing . . . we see a lot of upside potential when air travel comes back." But Marriott had not gone after Host until an initial DFS bid was made and accepted because "we didn't think they could be bought." Host's stockholders still must approve the Marriott takeover bid but no substantial objections are expected.
As for Gino's, a restaurant chain started by former Baltimore Colts defensive end Gino Marchetti and now based in King of Prussia, Pa., Marriott also is interested in something less than the full company.
"Significant points remain unresolved," said formal announcements from Gino's and Marriott in recent weeks about their talks--and for good reason. "Gino's represents a desire on our part to acquire some good real estate and to expand our Roy Rogers restaurants," said Marriott.
Gino's now operates 313 hamburger and chicken restaurants, 113 Rustler Steak Houses and 43 Kentucky Fried Chicken outlets, almost all of them in the densely populated and heavily traveled New York-Washington corridor. Overall sales from these restaurants exceed $325 million a year.
But, as Marriott explained his company's strategy, the Bethesda company is not interested in the steak houses and is not interested in the Kentucky Fried Chicken outlets. Marriott does want about 150 of the Gino's restaurant sites because "the biggest problem in the fast-food business today is getting real estate, because of zoning and other difficulties."
Negotiations with Gino's are continuing and "we're getting pretty close . . . we may have an announcement in the next week to 10 days," Marriott said. Any purchase of Gino's would be for cash, as in the Host acquisition.
Under the scenario that Marriott favors, an offer to buy Gino's would include selling back to Gino's management the Rustler Steak Houses and selling off the Kentucky Fried Chicken units. In addition, Marriott would put up for sale those Gino's locations it doesn't need or want for Roy Rogers expansion. The Gino's outlets kept by Marriott would be converted immediately to Roy Rogers operations, a fairly simple task because the restaurant layouts are similar. n effect, a Gino's deal now would just accelerate Marriott plans to add about 50 new Roy Rogers restaurants each year in the near future. The Bethesda firm would get three years' worth of expansion under its belt now and drop plans to build most new units--"a wash over three years" in terms of costs to Marriott, but it would be reaping sales and profits earlier than planned in such key markets as Philadelphia, Northern New Jersey, Baltimore and Washington.
The Gino's units converted to Roy Rogers outlets would add annual sales of $150-$175 million to Marriott fast food volume and make it a more substantial competitor to industry giant McDonald's in the Middle Atlantic states.
Although Marriott declined to provide a proposed purchase price for Gino's, he said that takeovers of both Host and Gino's could be financed through internal growth and existing lines of bank credit that total more than $500 million. At the most, he said, the two deals could add $100 million to Marriott's overall debt in 1982.
As for the year now ending, Marriott predicted "a pretty good fourth quarter" with growth about normal at a company that has seen annual expansion of profits and sales on the order of 15 percent each. Hotel occupancy rates are off about 2 percent for the year after a strong first quarter and a weaker travel environment since. Marriott suffered somewhat from a decline in hotel business in metropolitan New York but 20 percent of its hotel rooms are in Texas and California, where business has remained strong.
Marriott did not quarrel with Wall Street analysts' forecasts that profits would reach about $3.20 a share for 1981 compared with $2.60 in 1980, when earnings were $72 million on sales of $1.7 billion. Through the first nine months this year, Marriott profits were up 23 percent to $64.4 million ($2.40) from $55.1 million ($1.95) a year earlier, with sales up to $1.4 billion from $1.2 billion.
Negotiations also are in progress on an agreement with an unidentified company to pay $24 million in exchange for tax benefits, under leasing provisions of the 1981 tax act. Looking ahead, Marriott said he expects a significant economic recovery to start in the second half of 1982 because a sharp boost in savings under the new tax law will encourage investment activity and help keep interest rates at low-enough levels to help the depressed housing and automobile industries.