In its ongoing attempt to purchase Wyndham Hotels & Resorts Inc., Choice Hotels International Inc., has called upon the board of directors of Wyndham to engage in good faith discussions so that shareholders of both companies can benefit from the compelling combination. However, Wyndham continues to reject Choice’s transaction ovations.
Patrick Pacious, president/CEO, Choice Hotels, said, “We appreciate the positive feedback we have received since first making our proposal public, particularly the support from both companies’ shareholders and franchisees. Through our conversations with these stakeholders, we are encouraged by their clear understanding of the natural fit of the two businesses and belief in the combined company’s ability to drive greater shareholder returns, franchisee profitability and strategic benefits. They, and others, share our perspective that a transaction is pro-competitive, has a clear path to completion, and creates a combined company with a strong free cash flow profile to support both rapid deleveraging and investments for growth.”
He continued, “We respect Wyndham’s desire to achieve the best outcome for its shareholders, but that can’t happen if Wyndham unilaterally ends our discussions. Both companies’ shareholders have expressed to us their understanding of the tremendous value this combination could deliver. As recently as a few weeks ago, Wyndham prepared a critical information request list, on which both parties broadly aligned, to help Choice and Wyndham close any remaining value gaps. Wyndham then disengaged before any information was exchanged. We therefore strongly urge Wyndham to return to the discussions. Choice is ready to move expeditiously to negotiate binding terms, including mechanisms to provide market standard protections for Wyndham shareholders.”
Choice reports that the combined company would enhance competition against larger industry participants with strong balance sheets and an established market presence across multiple segments. “Many of these competitors have launched brands focused on the economy and midscale segments and are actively marketing to hotel owners in those segments,” the company said in a statement. “Large, branded alternatives for hotel owners and guests are already present across the economy and midscale segments, including Best Western, Extended Stay America, G6 (Motel 6), Oyo, Red Roof Inn and Sonesta, which would continue to provide multiple options to both current franchisees or hotel owners considering adopting a brand. Many hotel owners choose to be independent and in fact, independent hotels comprise nearly two-thirds of the economy segment and close to 40% of the midscale segment.”
It continued, “Significantly, unlike businesses with centralized pricing, all Choice and Wyndham hotel franchisees have complete autonomy to set their own prices. This consumer-friendly, pro-competitive structure would continue following transaction close. Franchisees, most of whom are small business entrepreneurs, are expected to receive significant benefits from the expanded system size and synergies that a Choice-Wyndham combination would provide. The proposed transaction is expected to lower franchisee costs by increasing direct bookings and create a rewards program on par with the top two global hotel rewards programs. Reducing reliance on third-party distribution channels and increasing rewards member guests has been a proven formula for improving hotel profitability. For these reasons, we were not surprised that many of our and Wyndham’s franchisees have expressed their support for the proposed transaction.”
Wyndham response
Wyndham has released a presentation in response to the offer and refute Choice’s claims.
Here are key takeaways from the presentation, according to Wyndham:
- Uncertain regulatory timeline and outcome presents vastly asymmetrical risk for Wyndham shareholders without appropriate protections and compensation
• Despite multiple requests, Choice has not offered solutions addressing the significant risks posed to Wyndham and its shareholders. Subject matter experts on both sides have acknowledged the combination would be subject to FTC second round review, which typically takes 12 to 18 months, and could pose significant business risk.
• The company has also heard from franchisees regarding their concerns about losing Wyndham’s owner-first philosophy. - Choice’s offer exploits timing and undervalues Wyndham’s superior, standalone growth prospects
• Choice’s offer is an opportunistic attempt to take advantage of point-in-time stock price fluctuations.
• Industry research analysts overwhelmingly believe Wyndham is undervalued and has significant upside.
• With a strong track record of delivering results and a clear plan in plan, Wyndham is poised to accelerate growth. - Choice’s slower-growing business and post-transaction, higher leverage negatively affects equity consideration
• Wyndham’s board has serious concerns over Choice’s organic growth prospects and those concerns are exacerbated if the pro-forma company will be left with an over-levered balance sheet that constrains its capital allocation strategy in a material way, further limiting its growth opportunities.
“To summarize, Wyndham’s board is confident in the company’s standalone growth strategy and believes the Choice proposal presents unmitigated asymmetrical risk and is inadequate on multiple fronts, including its opportunistic timing, the downside risk Choice’s stock represents in the consideration mix, and the disruption that Wyndham and its franchisee hotel owners could face from a lengthy regulatory process,” the company said in a statement.
AAHOA weighs in
AAHOA, which represents the majority of U.S. hotel owners with nearly 20,000 members owning more than 60% of all hotels in this country, has expressed “high concern” over the proposed acquisition.
“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 Bharat Patel, chairman, AAHOA. “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.”
Laura Lee Blake, president/CEO, AAHOA, added, “This news of a potential merger has sent a shock wave of high concern and even fear through our AAHOA membership. 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 supports Wyndham’s rejection of the proposal, and added, “We further call on the federal agencies, including the Federal Trade Commission (FTC), to do a thorough investigation to fully protect competition in this segment of the industry.”
