MONTHS OF RUMOR were confirmed true when Choice Hotels International on Wednesday announced it has proposed to acquire Wyndham Hotels & Resorts in an approximately $9.8 billion transaction. The proposal to Wyndham stockholders came after months of negotiations broke down and Wyndham’s board of directors voted to decline Choice’s offer, calling it “underwhelming” and risky.
AAHOA also issued a statement saying it has “high concern” that a Choice/Wyndham merger would give one franchiser too much dominance over the economy/limited service hotel segment.
The proposal
In its announcement of the proposal, Choice said it sought to acquire all the outstanding shares of Wyndham at a price of $90 per share, payable in a mix of cash and stock. Shareholders would receive $49.50 in cash and 0.324 shares of Choice common stock for each Wyndham share they own. Choice claims that is a 26 percent premium to Wyndham’s 30-day volume-weighted average closing price ending on Oct. 16, an 11 percent premium to Wyndham’s 52-week high, and a 30 percent premium to Wyndham’s latest closing price.
Wyndham shareholders would be able to choose either cash, stock, or a combination of cash and stock consideration, subject to a customary proration mechanism. The proposal implies a total equity value for Wyndham of approximately $7.8 billion on a fully diluted basis.
“We have long respected Wyndham’s business and are confident that this combination would significantly accelerate both Choice’s and Wyndham’s long-term organic growth strategy for the benefit of all stakeholders,” said Patrick Pacious, Choice’s president and CEO. “For franchisees, the transaction would bring Choice’s proven franchisee success system to a broader set of owners, enabling them to benefit from Choice’s world-class reservation platform and proprietary technology to drive cost savings and greater investment returns. Additionally, the value-driven leisure and business traveler would benefit from the combined company’s rewards program, which would be on par with the top two global hotel rewards programs, enabling them to receive greater value and access to a broader selection of options across stay occasions and price points.”
Choice’s efforts to acquire Wyndham has been rumored about since June, at which time both companies denied it. Geoff Ballotti, Wyndham’s president and CEO, continued to deny the reports as late as September during the company’s 2023 Global Conference in Anaheim, California.
“We never will comment on rumors,” Ballotti said at the time. “I hear a rumor just about every hour on the hour about something going on.”
Choice said negotiations on the deal have been ongoing for six months.
“A few weeks ago, Choice and Wyndham were in a negotiable range on price and consideration, and both parties have a shared recognition of the value opportunity this potential transaction represents. We were therefore surprised and disappointed that Wyndham decided to disengage,” Pacious said. “While we would have preferred to continue discussions with Wyndham in private, following their unwillingness to proceed, we feel there is too much value for both companies’ franchisees, shareholders, associates, and guests to not continue pursuing this transaction. Importantly, we remain convinced of both the many benefits of the combination and our ability to complete it.”
Choice made its proposal public as a direct appeal to Wyndham’s shareholders. It also created a website, CreateValueWithChoice.com, to promote the merger.
In its response, Wyndham outlined its specific reasons for declining Choice’s offer.
The response
Wyndham’s board unanimously rejected Choice’s proposal, calling it unsolicited, “highly conditional” and not in the best interest of shareholders. They identified several issues with the proposal, including:
- The proposed transaction involves significant business and execution risks, including an extended regulatory timeline and uncertainty of outcome, potential franchisee churn, and excessive leverage levels at the pro forma combined company.
- The consideration mix includes a significant component of Choice stock, which the board believes is fully valued relative to Choice’s growth prospects, especially when compared to Wyndham.
- The offer is opportunistic and undervalues Wyndham’s future growth potential.
“Choice’s offer is underwhelming, highly conditional, and subject to significant business, regulatory and execution risk. Choice has been unwilling or unable to address our concerns,” said Stephen Holmes, chairman of the Wyndham board. “While our board would support a value-maximizing transaction, given the substantial, unmitigated embedded risks and value destruction potential presented by the proposed transaction, our board determined it is not in the best interests of Wyndham shareholders. We have engaged with Choice and its advisors on multiple occasions to explore these risks. However, it became clear the proposed transaction likely would take more than a year to even determine if, and on what terms, it could clear antitrust review, and Choice was unable to address these long-term risks to Wyndham’s business and shareholders. We are disappointed that Choice’s description of our engagement disingenuously suggests that we were in alignment on core terms and omits to describe the true reasons we have consistently questioned the merits of this combination – Choice’s inability and unwillingness to address our significant concerns about regulatory and execution risk and our deep concerns about the value of their stock.”
AAHOA gave similar reasons for opposing the merger.
Concerned about ‘sector dominance’
In its statement, AAHOA pointed out that a merged Choice/Wyndham would have 16,500 hotels with 46 brands and dominate the economy/limited service segment.
“As the owners of more than two-thirds of both Choice Hotels and Wyndham-branded hotels, AAHOA members have much at stake with Choice’s potential purchase of Wyndham,” said AAHOA Chairman Bharat Patel. “To have one franchisor Choice Hotels control so many economy and limited service hotels will give our members little opportunity to have a say in whether the franchise mandates and requirements are fair, and significantly limit their options to find a different brand under which they could successfully operate their hotels.”
In February, Choice withdrew its support for AAHOA over the association’s support for franchising reform, including a proposed bill in New Jersey’s Assembly Bill 1958, which would make changes to the New Jersey Franchise Practices Act that could benefit hotel owners.
“This news of a potential merger has sent a shock wave of high concern and even fear through our AAHOA membership,” said Laura Lee Blake, AAHOA president and CEO. “We have seen in the past the major impact that mergers and acquisitions by the big hotel franchisor corporations can have on our members as the hotelier franchisees. Indeed, our AAHOA members fear a significant further dilution of the brands and fighting over the guest reservations on one reservation system. The changes can be highly disruptive to their business practices, and even cause a significant decrease in revenues overall.”
Blake said AAHOA is calling on the Federal Trade Commission to investigate the proposed merger.
