Wyndham board rejects takeover bid by Choice Hotels

Offer for $90 per share would value the transaction at $9.8B U.S., including debt

UPDATED: An unsolicited bid by Choice Hotels International to acquire Wyndham Hotels & Resorts, Inc. for $90 US per share (all figures U.S. dollars) has been rejected by Wyndham's board of directors.

The offer by Choice, which went public with its takeover attempt Tuesday morning, is valued at $9.8 billion including debt. Wyndham had previously decided to end private takeover talks following six months of dialogue. ?

"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," Stephen P. Holmes, Wyndham's board chair, said in a release issued late Tuesday morning. "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."

Wyndham, which bills itself as the largest hotel franchisor in the world, operates over 9,100 properties under 24 banners in over 95 countries.

"We have engaged with Choice and its advisors on multiple occasions to explore these risks," Holmes said in the release. ?

"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."

The offer by Choice

For its part, Choice president and CEO Patrick Pacious focused on the potential benefits of a business combination in his own comments.

"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,” Pacious said in the announcement by Choice.

“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 said the offer represents a 26 per cent premium to the 30-day volume-weighted average price ending on Oct. 16, an 11 per cent premium to its 52-week high, and 30 per cent premium to its latest closing price.

Wyndham shareholders would receive $49.50 in cash and 0.324 shares of Choice common stock for each Wyndham share they own, under the current offer.?

The Choice proposal also includes a cash-or-stock option which would provide Wyndham shareholders with the ability to choose either cash, stock, or a combination of cash and stock consideration?

The proposal implies a total equity value for Wyndham of approximately $7.8 billion on a fully diluted basis.

"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 in the announcement.

“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.”

Choice sent Wyndham initial offer in April

The announcement states Choice sent its initial letter to Wyndham regarding a potential transaction in April for $80 per share. Wyndham rejected the proposal and, according to Choice, then refused to engage in further discussions. In the days and weeks thereafter, Choice increasing its proposal to $85 per share.?

The companies' respective board chairs and CEOs met in person, and following that meeting, Choice improved its proposal to $90, comprising 55 per cent cash and 45 cent Choice stock.

After continued discussions through September, the talks broke off.

In its announcement today, Choice includes an extensive lists of what it sees as benefits of the takeover bid, including:

• lower total ownership costs and increased profitability for franchisees;
• provides nearly double the resources for marketing and driving direct bookings to franchisees’ hotels, and lowering the costs associated with these operations;
• Choice anticipates annual run-rate synergies of approximately $150 million; and
• Wyndham would be offered two seats on an expanded Choice Hotel board.

Choice also emphasizes what it calls the opportunity to repeat the “tremendous success” of its recent acquisition of Radisson Hotel Group Americas, which was completed in August 2022 and added 600 properties to its portfolio.

Wyndham cites number of concerns with offer

In its rejection notice, Wyndham cited a number of risks to shareholders including a potentially extended period between announcement and closing/termination of the transaction.

It believes this could lead to deterioration of Wyndham's brand equity, franchisee churn and/or integration issues at the combined company.

Wyndham also noted "the significant amount of debt required to fund the cash portion of the deal," which it says would result in net leverage being over six times adjusted EBITDA.

It contends this could restrict balance sheet flexibility, affect future growth potential, share price and valuation multiples.

Wyndham's board also has "significant questions and concerns about the value of Choice's stock. Choice's latest offer includes 45 per cent in Choice stock, which Wyndham's board believes is fully valued."

Choice Hotels International is one of the world’s largest lodging franchisors, with nearly 7,500 hotels, representing almost 630,000 rooms, in 46 countries and territories.?

Its portfolio includes 22 brands that range from full-service up-scale properties to mid-scale, extended stay and economy.?