Wyndham responded to Choice’s reveal by taking a very different stance, claiming the proposal was “unsolicited”.
Estimated deal value
Choice’s release stated that it offered to acquire all Wyndham’s outstanding shares at a price of US$90 per share, payable in a mix of cash and stock.
The proposal implied Wyndham’s total equity value is approximately US$7.8 billion on a fully diluted basis. With the assumption of Wyndham’s net debt, Choice estimated the transaction would be worth approximately US$9.8 billion.
Benefits claims
Choice said it made its latest proposal public following Wyndham’s decision to disengage from further discussions after nearly six months of dialogue.
Patrick Pacious, president and CEO of Choice Hotels, commented: “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. 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 traveller would benefit from the combined company’s rewards programme, which would be on par with the top two global hotel rewards programmes, enabling them to receive greater value and access to a broader selection of options across stay occasions and price points.”
Disengagement “surprise”
Pacious then went on to detail: “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.”
Wyndham standpoint
However, Wyndham’s view of the situation was contrasting. The New Jersey-headquartered firm reported that its board of directors unanimously rejected Choice’s “ highly conditional, unsolicited stock-and-cash proposal”.
Wyndham asserted that 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”. It also feels “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” and that “the offer is opportunistic and undervalues Wyndham’s future growth potential”.
Concerns “unaddressed”
Stephen P Holmes, chairman of Wyndham’s board, remarked: ““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.
“While our board would support a value-maximising 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.”
Timeframe dispute
Holmes alleged that the suggested takeover’s timespan was another stumbling block: “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.”
Current stalemate
While Choice published a letter dated 21 August appealing to Wyndham to accept its offer as a “compelling valuation for your shareholders” and re-engage with talks, Wyndham responded by recounting: “During the course of September 2023, Wyndham’s counsel held multiple conversations with Choice’s counsel to discuss regulatory and execution considerations, but Choice was unwilling to propose any mitigations to address Wyndham’s concerns about these risks and was unable to provide any convincing evidence of a pathway to resolve concerns raised by Wyndham.”
While discussions have currently stalled, should a deal be reached, a united group would comprise approximately 16,600 hotels thanks to Choice’s nearly 7,500 sites and Wyndham’s 9,100 properties, with a combined pipeline of 2,810 hotels, consisting of 960 from Choice and a record 1,850 from Wyndham.
