Choice Hotels International Inc. is commencing an exchange offer to acquire Wyndham Hotels & Resorts Inc. in order to present its proposal directly to Wyndham shareholders.
Choice continues to believe that a transaction with Wyndham is pro-competitive and would generate value for both Wyndham and Choice shareholders as well as deliver significant benefits to franchisees, guests and associates of both companies.
“While we would have preferred to come to a negotiated agreement, the Wyndham board’s refusal to explore a transaction has left us with no choice but to take our proposal directly to Wyndham’s shareholders,” said Patrick Pacious, president/CEO, Choice. “Wyndham chose to publicly reject our last proposal without any engagement even after we addressed their concerns, including adding significant regulatory protections for their shareholders.”
He added, “It remains our goal to reach a mutually agreeable transaction, and there is potential for additional value to be unlocked if Wyndham were to return to the negotiating table and provide due diligence. We look forward to meeting with Wyndham’s shareholders in the days and weeks ahead and to continuing the regulatory approval process we’re starting this week.”
Choice also revealed that it currently holds approximately 1.5 million shares of Wyndham common stock, valued in excess of $110 million and is filing the Hart-Scott-Rodino (HSR) notification in order to begin the required regulatory review.
Terms of exchange offer
The exchange offer maintains the previously proposed offer to Wyndham, comprised of $49.50 in cash and 0.324 shares of Choice common stock per Wyndham share, representing a value of $40.50 based on Choice’s trading price as of Oct. 16, 2023, the day prior to Choice’s first public offer (the Pre-Release Date). As of the Pre-Release Date, the proposed offer price equates to a 30% premium to Wyndham’s closing share price of $69.10, and reflects a 14.9x multiple of Wyndham’s consensus 2023 adjusted EBITDA estimate, a forward multiple Wyndham has never achieved, absent COVID disruptions.
The exchange offer provides Wyndham shareholders the opportunity to elect to receive the consideration in all cash, all shares or a combination of cash and shares, subject to a customary proration mechanism. In addition, the exchange offer features a regulatory ticking fee of 45 cents per Wyndham share per month, equivalent to $38 million per month, accruing daily after the one-year anniversary of the date a majority of Wyndham’s shares are tendered into the offer. This additional consideration, which has been included so that Wyndham shareholders can receive benefits similar to what Choice previously offered in its Nov. 14, 2023, proposal in the unlikely event the transaction were to take longer than 12 months to close, would be payable in cash or stock, at Choice’s election, upon Choice’s acceptance and exchange of the Wyndham shares tendered into the offer.
The exchange offer and withdrawal rights are scheduled to expire at 5:00 p,m., New York City time on Friday March 8, 2024, unless the offer is extended or terminated. The exchange offer is subject to conditions, including the receipt of all required regulatory approvals. In the exchange offer, Choice is committing to take all actions required by regulators in connection with the approval of the transaction so long as such actions would not have a material adverse effect on the combined company. The full terms, conditions and other details of the exchange offer are set forth in the offering documents that Choice is filing with the Securities and Exchange Commission.
Choice made a proposal privately to Wyndham on Nov. 14, 2023, comprised of $49.50 in cash and 0.324 shares of Choice common stock per share of Wyndham stock, and offered Wyndham two seats on the combined company’s board.
The Nov. 14, 2023, proposal included certain additional protections for Wyndham shareholders to provide certainty, as Wyndham publicly stated they desired, including:
- A reverse termination fee of $435 million, which represents approximately 6% of the total equity purchase price, payable in the event that the transaction did not close due to the failure to receive the required regulatory approvals;
- A regulatory ticking fee of 0.5% of the total equity purchase price per month, accruing daily after the one-year anniversary of the signing of definitive agreements;
- A mutual non-disclosure agreement to allow the parties to conduct confirmatory due diligence; and
- A commitment to taking all actions required by regulators in connection with the approval of the transaction so long as such actions would not have a material adverse effect on the combined company.
Wyndham publicly rejected the proposed terms on Nov. 21, 2023.
While not applicable to the exchange offer, in the context of a negotiated transaction, Choice remains willing to offer Wyndham shareholders a reverse termination fee that is consistent with the terms in its Nov. 14, 2023, proposal and two seats on the combined company’s board. Additionally, Choice is willing to enter into a mutual non-disclosure agreement to conduct confirmatory due diligence that could potentially unlock additional value for Wyndham shareholders.
Path forward and next steps
Choice is starting the clock on the regulatory approval process and is filing notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with the U.S. Federal Trade Commission (FTC) today. Choice has already met with the FTC on a voluntary basis to discuss the pro-competitive nature of the transaction and looks forward to continuing to work closely with the FTC. Choice is committed to completing the transaction within one year.
Choice is actively identifying, evaluating and interviewing highly qualified director candidates to nominate to Wyndham’s board and has requested the Directors’ & Officers’ (D&O) Questionnaire from Wyndham in accordance with Wyndham’s bylaws. Choice intends to nominate a slate of directors to the Wyndham board of directors at Wyndham’s 2024 Annual Shareholder Meeting.
Advisors
Moelis & Company LLC, Goldman Sachs & Co. LLC and Wells Fargo are serving as financial advisors to Choice, and Willkie Farr & Gallagher LLP and Axinn, Veltrop & Harkrider LLP are serving as legal advisors.
Wyndham responds
Consistent with its fiduciary duties, and in consultation with its independent financial and legal advisors, the Wyndham board of directors will carefully review and evaluate the offer to determine the course of action that it believes is in the best interests of Wyndham and its shareholders.
However, the offer looks to be unchanged from Choice’s previous highly conditional offer the board reviewed and rejected, which failed to address the serious concerns repeatedly expressed by Wyndham, including:
- The asymmetrical risk to Wyndham shareholders given the uncertainty around antitrust approval (if any) and the estimated 24-month timeline previously cited by Choice;
- The undervaluation of Wyndham’s superior, standalone growth prospects; and
- The value of Choice shares relative to its growth prospects and further compromised by elevated levels of leverage that this deal would require.
The board intends to advise shareholders of its recommendation regarding the offer within 10 business days by making available to shareholders and filing with the SEC a recommendation statement on Schedule 14D-9. Wyndham shareholders are urged not to take any action with respect to the offer until the board announces its recommendation.
Deutsche Bank Securities Inc. and PJT Partners are serving as financial advisors and Kirkland & Ellis LLP is legal advisor to Wyndham.
