Choice Hotels International is continuing its efforts to acquire Wyndham Hotels & Resorts, launching an exchange offer in order to present its proposal directly to Wyndham shareholders.
Terms of the 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, 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 percent premium to Wyndham's closing share price of $69.10, and reflects a 14.9x multiple of Wyndham's consensus 2023 adjusted estimate of earnings before interest, taxes, depreciation and amortization—a forward multiple Choice claims that Wyndham has never achieved absent COVID disruptions.
According to Choice, 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 includes a regulatory ticking fee of $0.45 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 proposal in case 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 p.m. EST on March 8, 2024, unless the offer is extended or terminated.
Wyndham Responds
In its own statement, Wyndham’s leadership said that “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 company noted that the offer “looks to be unchanged from Choice's previous highly conditional offer the Board reviewed and rejected,” which the board claims “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.”
Back and Forth
“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,” Choice President and CEO Patrick Pacious said in a statement. “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.”
Choice took the offer public in October after six months of negotiations lead to a rejection of the bid from Wyndham’s board of directors. Since then, the two companies have argued their cases before their respective shareholders, explaining their rationals during each of their respective Q3 earnings calls.
Choice currently holds approximately 1.5 million shares of Wyndham common stock, valued at more than $110 million. In its statement, the company said it was “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 today. Choice has already met with the FTC on a voluntary basis to discuss what it calls “the pro-competitive nature of the transaction” and is “committed to completing the transaction within one year.”
Wyndham, in turn, said that Choice owns less than 1.7 percent of Wyndham common stock, and noted that Choice is “restricted from further purchases without antitrust approval.”
Confirming last month’s report from Reuters, Choice is “actively identifying, evaluating and interviewing highly qualified director candidates” to nominate to Wyndham's board and has requested the Directors' & Officers' 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.
In the statement, Choice’s leadership said they were “willing to offer Wyndham shareholders a reverse termination fee” that is consistent with the terms in its Nov.14 proposal and two seats on the combined company's board. Additionally, the leadership said they were willing to enter into a mutual non-disclosure agreement to conduct confirmatory due diligence “that could potentially unlock additional value for Wyndham shareholders.”
“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,” Pacious added.
Wyndham’s Board intends to advise shareholders of its recommendation regarding the offer within ten business days by making available to shareholders and filing with the U.S. Securities and Exchange Commission a recommendation statement on Schedule 14D-9. The Board urged Wyndham’s shareholders “not to take any action with respect to the offer until the Board announces its recommendation.”
Moelis & Company, Goldman Sachs & Co. and Wells Fargo are serving as financial advisors to Choice and Willkie Farr & Gallagher and Axinn, Veltrop & Harkrider are serving as legal advisors to Choice. Deutsche Bank Securities and PJT Partners are serving as financial advisors and Kirkland & Ellis is legal advisor to Wyndham.