Wyndham Hotels & Resorts has made it clear to its shareholders that it believes it’s in their best interest to reject Choice Hotels International’s “unsolicited” exchange offer to acquire all outstanding shares of Wyndham, calling it insufficient for three main reasons.
On December 12, Choice launched what is called an “exchange offer” to acquire Wyndham, a type of tender offer in which securities or other non-cash alternatives are offered in exchange for shares. A tender offer, which is a polite term for a takeover bid, is when an investor, Choice Hotels, in this case, proposes buying shares from every shareholder of a publicly traded company for a certain price at a certain time.
In the case of Wyndham, Choice Hotels came out publicly in October with a bid of $90 per share, which would value Wyndham Hotels & Resorts at around $8 billion. On the day Choice announced its bid, the stock price of Wyndham Hotels & Resorts (WH) shot up 9%, settling in at $75.26. As of December 18, WH is trading at $78.09, up 4.8% in the last three months. Meanwhile, Choice Hotels’ stock is trading at $111.66 as of December 18, down 11.2% in the past three months.
While Choice Hotels’ initial bid was $90, Wyndham in its counter statements has been calling it $85 per share, the $5 delta a result of stock price fluctuations of the two companies subsequent to Choice’s bid.
On Monday, Wyndham came out to address Choice’s latest attempt to bring Wyndham shareholders to its side. “Choice has, once again, failed to address the major value gap and risks of their offer, which remains virtually unchanged from the terms outlined in their previous unsolicited proposal,” said Stephen Holmes, Wyndham’s chairman of the board. “The core issues we have articulated remain the same: a likely prolonged regulatory review period of up to 24 months with an uncertain outcome; the pure inadequacy of the offer from a valuation standpoint, including the significant equity component of Choice stock; and the lack of consideration for Wyndham’s superior, standalone growth prospects.”
An unsolicited bid that progress into a hostile bid rarely results in a deal being closed. Choice Hotels’ own financial advisor, Moelis & Company, raised the point during a recent conference focused on mergers & acquisitions and hosted by the Practising Law Institute. During one panel, Anton Sahazizian, global head of M&A for Moelis, presented a slide titled: “Hostile Tender Offers Typically Avoided by Acquirers.” It showed that since 2019 there have been 98 unsolicited offers made with an enterprise value above $1 billion. Of those, 10 became hostile, meaning the target rejected the bid. Subsequently, of those 10, four went to a hostile tender offer and none of those closed.
Holmes continued, “Our Board has made itself consistently clear on these risks, but Choice continues to ignore what is in the best interests of Wyndham shareholders by repeatedly proposing illusory and unrealistic offers while making inconsistent and misleading public statements. We are confident Wyndham can deliver long-term shareholder value well in excess of the $85 per share offered by Choice by continuing to execute on our existing business plan. The Board is steadfast in our recommendation that shareholders not tender their shares into this offer, and we remain fully committed to acting in the best interests of all Wyndham shareholders.”
Wyndham also unveiled a presentation at StayWyndham.com, detailing what it calls the “unprecedented antitrust risks this offer presents.”
The Wyndham board’s rejection of the bid continues on the same grounds it originally elucidated; namely: an uncertain, prolonged regulatory timeline, standalone growth prospects for Wyndham and overall low-ball price.
It’s worth noting that the CEO of AAHOA, which represents some 66% of Wyndham and Choice franchisees, is against the deal. “The merger of the two brands would reduce competition, especially in the economy, limited-service segment, and really to the detriment of the franchisee hotel owners,” said Laura Lee Blake, CEO of AAHOA.