Wyndham Hotels & Resorts, Incorporated rejected an unsolicited takeover bid by Choice Hotels International, Incorporated earlier today, Tuesday, October 17, 2023 because the proposal presents an “unacceptable risk to Wyndham shareholders” and is “underwhelming”.
Wyndham Rejected Unsolicited Takeover Bid By Choice Hotels
As part of the proposal, Choice Hotels International, Incorporated would acquire all of the outstanding shares of Wyndham Hotels & Resorts, Incorporated at a price of $90.00 per share. “Under’s proposal, the $90.00 per share to be received by Wyndham shareholders would consist of $49.50 in cash and 0.324 shares of Choice common stock for each Wyndham share they own”, according to the official press release from Choice Hotels International, Incorporated. “Choice’s proposal represents a 26% premium to Wyndham’s 30-day volume-weighted average closing price ending on October 16, 2023, an 11% premium to Wyndham’s 52-week high, and a 30% premium to Wyndham’s latest closing price. In addition, Choice’s proposal includes a cash or stock election mechanism, which would provide Wyndham shareholders with the ability 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. With the assumption of Wyndham’s net debt, the proposed transaction is valued at approximately $9.8 billion.”
This proposal was the latest in a series of attempts by Choice Hotels International, Incorporated to acquire Wyndham Hotels & Resorts, Incorporated over the past six months.
The board of directors of Wyndham Hotels & Resorts, Incorporated closely reviewed the latest proposal — together with its financial and legal advisors — with a nominal value of $90.00 per share that would be comprised of 45 percent in stock and 55 percent in cash; and determined that the terms of the proposal are not in the best interest of shareholders to accept the offer because 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
- Consideration mix includes a significant component of Choice Hotels International, Incorporated stock, which the board of directors believes is fully valued relative to the growth prospects of Choice Hotels International, Incorporated — especially when compared to Wyndham Hotels & Resorts, Incorporated
- Offer is opportunistic and undervalues the future growth potential of Wyndham Hotels & Resorts, Incorporated
According to the official press release from Wyndham Hotels & Resorts, Incorporated:
Wyndham’s Board believes that during the long period between announcement and closing or termination of the transaction, Wyndham shareholders would be exposed to the threat of significant long-term deterioration of Wyndham’s brand equity, franchisee churn, and impaired integration execution at the combined company in which Wyndham shareholders would have significant interest.
In addition, the significant amount of debt required to fund the cash portion of the deal would result in the combined company’s net leverage being over 6x adjusted EBITDA. This above-market leverage would increase execution risk and restrict the balance sheet flexibility of the combined company, putting downward pressure on future growth potential, share price and valuation multiples. As a result, the value creation from cost synergies may not be fully realized.
Wyndham’s Board also has significant questions and concerns about the value of Choice’s stock. Choice’s latest offer includes 45% in Choice stock, which Wyndham’s Board believes is fully valued. Industry experts unequivocally share the view of Choice being fully valued, with over three-quarters of research analysts having Choice at a Sell or Hold rating. Wyndham’s Board sees Choice’s offer as an attempt to mask their anemic organic growth and believes Wyndham shareholders are better positioned owning Wyndham’s stock, which has significant upside relative to Choice’s fully valued stock.
Final Boarding Call
The acquisition of the franchise business, operations, and intellectual property of Radisson Hotel Group Americas by Choice Hotels International, Incorporated — which includes greater than 68,000 hotel rooms in 624 hotel and resort properties under nine brands in the United States, Canada, Latin America, and the Caribbean — for approximately $675 million was completed on Thursday, August 11, 2022.
To be honest, both lodging companies have a surfeit of mediocre brands between them that overlap, in my opinion: Econo Lodge, Rodeway Inn, and Suburban Studios for Choice Hotels; and Travelodge, Super 8, and Days Inn for Wyndham, as an example. I cannot tell you how many times I have confused Rodeway Inn and Travelodge over the years — and I have stayed at properties of both hotel brands.
This drama has not concluded yet by any means. Expect further details to be updated as the attempts of Wyndham Hotels & Resorts, Incorporated being acquired by Choice Hotels International, Incorporated continues…
All photographs ©2017 and ©2020 by Brian Cohen.
