Scroll down to see response from Wyndham
Choice Hotels International Inc. has revealed a proposal to acquire all the outstanding shares of Wyndham Hotels & Resorts Inc. at a price of $90 per share, payable in a mix of cash and stock. Wyndham has ended months-long negotiations with the company.
Under Choice’s proposal, the $90 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. Choice’s proposal represents a 26% premium to Wyndham’s 30-day volume-weighted average closing price ending on Oct. 16, 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.
Choice is making its latest proposal public following Wyndham’s decision to disengage from further discussions with Choice, following nearly six months of dialogue, according to the company.
“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, president/CEO, Choice Hotels. “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.”
He continued, “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. 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.”
Response from Wyndham
Wyndham Hotels & Resorts has revealed that its board of directors unanimously rejected a “highly conditional, unsolicited” stock-and-cash proposal by Choice Hotels International Inc. to acquire all outstanding shares of Wyndham.
Wyndham’s board, together with its financial and legal advisors, closely reviewed Choice’s latest proposal with a nominal value of $90 per share, comprised of 45% in stock and 55% in cash and determined that it is not in the best interest of shareholders to accept the proposal.
In rejecting Choice’s proposal, the Wyndham board:
- 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,” said Stephen P. Holmes, chairman, Wyndham board of directors. “Choice has been unwilling or unable to address our concerns. 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.”
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, according to Wyndham. 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.
Choice’s offer is an opportunistic attempt to take advantage of point-in-time stock price fluctuations coinciding with a time period where the exchange ratio is favorable to Choice, according to Wyndham. Choice’s offer is insufficient relative to Wyndham’s recent trading levels, significant growth momentum and premiums paid in precedent change of control transactions. Wyndham’s board believes Wyndham can deliver long-term shareholder value in excess of Choice’s offer by continuing to execute on its business plan.
