Wyndham Hotels & Resorts on Tuesday made public a letter it said Choice Hotels International had sent it on November 14 reattempting to sway the company’s board to warm to its offer to acquire the company. Like prior proposals, it was roundly rejected.
In a press release, Wyndham alluded to the letter, published the entirety of its contents and laid bare its rebuttal to it, a spokesperson for the company telling HOTELS that it was made public “because our stakeholders deserve all the facts.”
Wyndham said that the November 14 dated letter was the first time in a month it had heard from Choice since its public disclosure to acquire the company and that it represented “a step backwards.”
“The terms Choice outlined are not in the best interests of Wyndham or its shareholders,” the statement read.
It continued, “At Choice’s current share price, its offer to acquire all outstanding shares of Wyndham stands at a value of $86 per share, below the nominal value of $90 per share proposed on October 17, 2023.”
In what Choice referred to as an “enhanced proposal,” its letter to Wyndham, sent by CEO Pat Pacious, offered $49.50 per share in cash and 0.324 shares of Choice stock, which, the letter stated, equates to $90 per Wyndham share based on Choice’s stock price as of October 16, 2023. This “represents a 31% premium to your unaffected share price on May 22, 2023 (prior to WSJ leak) and a 24% premium to your share price as of the pre-release date based on Choice’s current stock price, and 37% and 30% premiums, respectively, based on Choice’s stock price as of the pre-release date.”
The proposal implies a total equity value for Wyndham of approximately $7.8 billion.
In a statement made to HOTELS, Choice Hotels said: “We are committed to reaching a transaction with Wyndham and we intend to pursue all paths available to us to get there. We believe the latest rejection is an unequivocal demonstration of the Wyndham Board and management team’s entrenchment as they continue to fail to fulfill their fiduciary duties by refusing to meaningfully explore a transaction that would deliver significant value to Wyndham shareholders and other stakeholders.”
“The industrial logic of the transaction is irrefutable,” Pacious further wrote. “This transaction is pro-competitive and the required regulatory approvals are obtainable. This combination will drive more direct bookings, lower hotel operating costs and create a stronger rewards program.”
Despite Wyndham’s continued opposition to the deal on financial grounds, one of the other major hurdles addressed is regulatory approval, which could be highly contentious given that a deal would ostensibly give Choice a chokehold on economy-segment franchising in the U.S.
Choice’s letter stated it was prepared to offer Wyndham significant protections to address concerns regarding potential regulatory uncertainty, including a reverse termination fee of $435 million, “which represents approximately 6% of the total equity purchase price,” and added protections that acknowledge it could take as much as two years to get a deal approved.
Stephen Holmes, chairman of Wyndham’s board, said in the press release that Choice’s most recent entreaty still fails to address Wyndham’s major concerns centered around “value, consideration mix and asymmetrical risk to our shareholders given the uncertainty around regulatory timeline and outcome.”
In addition, he said that Choice’s existing proposal is valued at $86 per share, “lower than the unsolicited public proposal of $90 per share they made a month ago.”
Holmes also pointed out Choice’s temporal realization surrounding regulatory approval. “They are essentially asking our shareholders to take on serious risk and accept as compensation for a failed deal a low reverse termination fee that doesn’t even begin to compensate for the potential lost earnings and long-term impairment to value that could occur during an uncertain two-year regulatory review.”
Beyond a press release addressing Choice’s letter, Wyndham also sent Choice a response letter dated November 21. In it, Holmes accused Choice of deceiving its franchisees into believing a deal would get done. “Since May,” Holmes wrote, “your franchise sales team and executive leadership have been actively exploiting the uncertainty around Wyndham that you created to seek a competitive advantage in the market for franchisees and development partners.”
He claimed that Choice representatives told Wyndham owners and prospects that completion of the acquisition is a “100% certainty,” in what he called “an apparent attempt to discourage them from doing business with Wyndham.”
Holmes also wrote that Choice’s proposed termination fee was “puzzling” and not “robust” given the characterization of a “100% confidence level in the deal closing being.”
Holmes reiterated that as fiduciaries it is their responsibility to shareholders to continue to evaluate and engage in discussions with Choice if it makes a proposal that allays and addresses all of Wyndham’s concerns. “Given your persistent unwillingness to adequately and promptly address the three concerns that have been consistently communicated or to abandon your current proposal, we are compelled to make our response public as we are not prepared to expose Wyndham’s business to continued uncertainty, from which you benefit competitively,” Holmes wrote.
Choice Hotels consuming Wyndham Hotels & Resorts would create an economy and mid-tier giant. Choice Hotels currently has 22 brands and nearly 7,500 hotels, representing almost 630,000 rooms, in 46 countries and territories. Some of its more well-known brands are Comfort Inn & Suites and Sleep Inn, hotels sought out by value-conscious travelers. Wyndham, meanwhile, is even larger than Choice with more than 9,000 hotels worldwide and 24 brands, such as Super 8, Days Inn and La Quinta, similarly targeting value-conscious travelers.
A combined company would consist of more than 16,500 hotels worldwide.