Marriott and Partner Buy Howard Johnson

Howard Johnson Co., the struggling hotel and restaurant chain known for its orange rooftops and ice cream parlors, was acquired Tuesday by Marriott Corp. and Prime Motor Inns in a two-step deal for $314 million cash.

Marriott bought the Quincy, Mass.-based Howard Johnson from its British owner, Imperial Group of London, but then simultaneously agreed to sell a substantial portion of the company for $235 million to Prime Motor Inns, a major Howard Johnson licensee in Fairfield, N.J.

The acquisition catapults Prime Motor Inns from a chain of 63 motels into one of the nation’s largest lodging companies.

Four Firms Once in Running

At one point, as many as four companies were bidding for the 60-year-old Howard Johnson chain, industry analysts said. Bethesda, Md.-based Marriott, considered the most likely purchaser, had pulled out of negotiations with Imperial Group in June, only to return during the summer with a winning bid.

The sale, announced by the companies Tuesday, marks the second time in five years that the company has changed hands.

Under the definitive agreement, expected to be completed before year-end, Prime Motor Inns will acquire the chain’s 125 motor lodges and hotels, 375 franchised motor lodges and 199 franchised restaurants. Marriott, operator of 145 hotels worldwide, will keep Howard Johnson’s 350 company-owned restaurants, 68 turnpike restaurants and management agreements at four Plaza-Hotels--the chain’s upscale lodging ventures. The restaurants and lodges are located predominantly in the Northeast.

Prime Motor Inns also acquires the Howard Johnson name and trademark for lodges and restaurants.

Imperial Group will retain the 210-unit Ground Round restaurant chain, regarded as one of Howard Johnson’s more profitable operations.

Unspecified Position

G. Michael Hostage, Howard Johnson’s president and chief executive since 1982, is expected to join Prime Motor Inns in an unspecified senior executive position, according to sources close to the transaction, but officials from the two companies were unable to confirm that late Tuesday.

Industry analysts say the biggest reason that Prime Motor Inns and Marriott sought Howard Johnson is the excellent locations of most Johnson hotels and restaurants along major highways. Some said the Howard Johnson name may be the company’s major liability, given the chain’s deterioration in recent years.

Analysts believe that the chain, a pioneer in the roadside hotel-restaurant business, has failed to keep up with growing competition in the industry.

But industry analysts viewed the deal as a sound one for both Marriott and Prime Motor Inns. At the same time, Imperial Group, one of the biggest corporations in Great Britain, is relieved of the hotel chain that saw profits tumble 40% in the past year. Imperial Group has owned Howard Johnson since 1980.

Although an Imperial spokesman said the company could have solved Howard Johnson’s problems “over time,” he said it would have required more time and capital than the company was willing to invest. After repaying loans of $152 million due to Howard Johnson, Imperial Group expects to recognize a gain of only $162 million out of the transaction, the spokesman said.

Rapid Increase

One result of the sale will be a rapid increase in the number of Howard Johnson motor lodge franchises nationwide but a simultaneous decrease in Howard Johnson restaurants, many of which will be quickly converted into outlets of the Marriott-owned Bob’s Big Boy chain, the companies said.

“It is the restaurants where the majority of the image damage has been done. The lodgings continue to have a decent reputation among consumers,” said John J. Rohs, an analyst at Wertheim & Co., a New York brokerage house.

J. W. Marriott Jr., president and chief executive of Marriott, said his company will use the acquisition to “expand and strengthen” its successful chain of 868 Bob’s Big Boy units. Marriott also owns or operates 542 Roy Rogers restaurants and 40 turnpike restaurants. It operates an international catering service for 150 airlines and manages food operations at 43 domestic airline terminals.

Prime Motor Inns officials say they intend to keep the Howard Johnson name for both hotels and restaurants and expect to pump millions into fast franchising of the hotel chain.

“The expansion will be dramatic,” said Howard Kahan, vice president at Prime Motor Inns. He would not specify expansion plans but said the number of franchise operations could double within a few years. He also said that service levels will be upgraded at the hotels and that advertising will see a big boost.

Deal Considered Favorable

Analyst Rohs said the deal should prove favorable to both Marriott and Prime Motor Inns. “By the time both companies are done selling off some of the assets, the price will be very attractive,” he said.

Marriott and Prime Motors Inns have grown aggressively in recent years. Marriott, for example, has spent more than $2 billion to enter the mid-scale end of the industry with its Courtyard motels, and Marriott is scheduled to officially open its $400-million, 1,877-room hotel in Manhattan’s Times Square on Oct. 10.

Last year, Prime Motors Inns acquired American Motor Inns for $200 million.