Confirming long-held rumors, Choice Hotels International has announced a proposal to acquire all the outstanding shares of Wyndham Hotels & Resorts at a price of $90 per share, payable in a mix of cash and stock. Choice is making its latest proposal public following Wyndham's decision to disengage from further discussions with Choice, following nearly six months of dialogue.
To encourage progress on the deal, Choice has launched a website with more information available to stakeholders.
Wyndham has released a statement in response to the announcement.
The Proposal
If the deal goes through, it would create a network of approximately 16,360 hotels open worldwide and more than 2,700 in the pipeline. A full 97 percent of the hotels in the U.S. would be in the select-service segment, and according to Choice, nearly all of the hotels would be franchised.
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 percent premium to Wyndham's 30-day volume-weighted average closing price ending on October 16, an 11 percent premium to Wyndham's 52-week high and a 30 percent 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.
“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," Choice President and CEO Patrick Pacious said in a statement. "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.”
Pacious noted that “a few weeks ago,” the two companies were in “a negotiable range” on price and consideration, and both parties had a “shared recognition of the value opportunity” involved in the deal. “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.”
In its statement, Choice laid out the benefits it expects the deal to provide for both companies' stakeholders. Notably, for franchisees, the deal would reportedly nearly double the resources available for marketing and driving direct bookings to franchisees' hotels, lowering the cost of customer acquisition. The company also believes the acquisition would improve the value of franchisees' real estate assets by enhancing applicable cap rates and cash flows resulting from affiliation with the proforma company.
The Negotiations
Choice has been engaging with Wyndham on the proposal for nearly six months.
In April, Choice sent its initial letter to Wyndham regarding a potential transaction, proposing to acquire Wyndham for $80 per share, comprising 40 percent cash and 60 percent Choice stock. The proposal represented a 20 percent premium to the closing price of Wyndham common stock on April 27, and a 19 percent premium over Wyndham's 30-day volume-weighted average share price as of such date. Wyndham rejected the proposal and refused to engage in further discussions.
In the days and weeks thereafter, Choice continued to attempt engagement with Wyndham, increasing its proposal to $85 per share, comprising 55 percent cash and 45 percent Choice stock, explaining that further discussions could clarify Wyndham's hesitation to proceed with negotiations. The companies' respective board chairs and CEOs then met in person, and following that meeting, Choice improved its proposal yet again. Choice made its best and final offer, which represented an increase of the per-share consideration to $90, comprising 55 percent cash and 45 percent Choice stock.
In September, the Choice and Wyndham board chairs continued engagement, along with each of their respective financial and legal advisors. Wyndham acknowledged the strategic rationale of the proposal and that terms were within a negotiable range but raised questions regarding the value of Choice stock and timing for obtaining regulatory approvals. In response, Choice proposed to enter into a one-way, short-term non-disclosure agreement to facilitate Choice providing information that would address Wyndham's concerns (a draft of which was subsequently sent to Wyndham) and made its external counsel available for several discussions. However, during a follow-up call between the chair of each company's board and their respective advisors, Wyndham "made clear their unwillingness" to proceed with further discussions, Choice said in its statement.
Closing of the contemplated transaction would be subject to satisfaction of customary closing conditions, including receipt of required shareholder and regulatory approvals. Choice would not make this offer if it were not confident that its franchisees and guests would embrace the proposed combination and that the transaction would receive applicable regulatory approvals in due course.
The cash portion of the purchase price is expected to be funded with a combination of cash on hand as well as proceeds from the issuance of debt securities. According to the company's statement, Choice is "highly confident" in its ability to obtain fully committed financing based on indications from two separate bulge bracket global banks for the entire cash portion of the proposal. "Strong free cash flows will allow for continued investments in the proforma business and rapid deleveraging of the balance sheet," the company claimed.
Correction: A previous version of this story reported the price as nearly $10 billion. That price included Wyndham's debt. The headline has been updated.