## Facts

- Marriott Corporation issued Series A Cumulative Convertible Preferred Stock; plaintiffs were institutional investors holding over 50% of that class.
- In October 1992, Marriott announced a restructuring featuring a large special dividend and a separation of the business into two companies.
- The transaction would transfer certain “spin-off assets” to a new entity, Marriott International, Inc., and then distribute International’s stock as a dividend to Marriott common stockholders.
- The existing corporation (renamed Marriott Host Corporation) would retain certain real estate and concession assets but remain responsible for most of Marriott’s long-term bond obligations, while International would assume a smaller portion.
- Plaintiffs alleged the distribution would leave Host more highly leveraged and economically weaker, impairing the practical value of the preferred stock’s conversion feature.
- Marriott’s certificate of incorporation provided anti-dilution protection requiring a conversion price adjustment upon a special dividend to preserve conversion value.
- Plaintiffs sought preliminary injunctive relief to stop the special dividend/spin-off before consummation, asserting breach of duties owed to preferred holders and failure to preserve conversion value.

## Issues

1. Whether the preferred holders’ challenge was primarily a fiduciary-duty claim or a contract claim governed by the certificate of incorporation.
2. Whether the planned special dividend and spin-off, with the charter’s conversion-price adjustment, complied with the preferred stock’s contractual protections.
3. Whether plaintiffs satisfied the requirements for a preliminary injunction, including a reasonable probability of success on the merits and irreparable harm.

## Decision

- The Court of Chancery denied the application for a preliminary injunction.
- The court treated the dispute as essentially contractual, turning on construction and application of the preferred stock rights stated in the charter.
- The court concluded plaintiffs had not shown a sufficient likelihood of success that Marriott violated the charter’s anti-dilution and conversion-value protections.
- The court declined to use fiduciary-duty doctrines to add protections beyond the charter’s express allocation of rights and risks to preferred holders.
- Weighing equitable considerations, the court allowed the restructuring to proceed.

## Legal Principles

- Preferred stockholder rights are primarily contractual; courts look first to the certificate of incorporation to determine the corporation’s duties to preferred holders.
- Fiduciary duties generally cannot be used to create or expand preferred stockholder protections that were not granted in the charter, where the challenged action is permitted under the governing terms.
- Anti-dilution and conversion-adjustment provisions operate as negotiated risk allocations; when a transaction triggers an agreed adjustment mechanism, compliance with that mechanism is central to evaluating the claim.
- Preliminary injunctive relief requires, at minimum, a showing of a reasonable probability of success on the merits; absent a strong showing of contractual breach, the court will be reluctant to enjoin a major corporate transaction.

## Conclusion

The court refused to enjoin Marriott’s special dividend and spin-off because the preferred holders’ protections were defined by the charter, the transaction was addressed by the charter’s conversion-adjustment mechanism, and fiduciary-duty arguments could not rewrite the preferred holders’ bargain.


HB Korenvaes Invs., L.P. v. Marriott Corp., 1993 WL 205040 (Del. Ch. June 9, 1993)