CorePoint Lodging, a select-service hotel owner focused on the midscale and upper-midscale segments, has entered into a definitive agreement to be acquired through a joint venture between affiliates of Highgate and Cerberus Capital Management.
Under the terms of the merger agreement, Highgate and Cerberus will acquire all outstanding shares of CorePoint common stock in an all-cash transaction valued at approximately $1.5 billion based on the $15.65 per share consideration, which reflects the assumption of current net debt and a $160 million buyer liability reserve for the Internal Revenue Service matter detailed below. This price represents a premium of approximately 42 percent to CorePoint’s closing share price on July 13, the last trading day prior to the company’s public announcement of its strategic alternatives process.
In addition to the $15.65 per share payable in cash at closing, CorePoint stockholders may receive incremental cash consideration per share pending timely resolution of the previously disclosed tax proceedings with the IRS related to an ongoing audit of CorePoint entities, which began prior to the company’s 2018 spin-off from La Quinta Holdings. The amount of any potential additional cash consideration payable to CorePoint stockholders will be calculated based on the amount, if any, by which the settlement amount is less than a buyer liability reserve of $160 million agreed to by the parties. The company received a settlement offer from the IRS with respect to the IRS matter on Nov. 5, 2021, and expects to accept that offer and enter into an agreement with the IRS this week. The settlement offer provides for total payments by the company of approximately $89.6 million plus statutory interest through the date of payment. Pursuant to this settlement offer, the company estimates the total payment amount pursuant to the settlement will be approximately $155 million. As such, the company currently expects that the amount of any such additional consideration will likely be approximately 10 cents per share. There can be no assurances that any additional consideration will be received by the company’s stockholders.
“Over the past few years, CorePoint has been executing on a disciplined asset disposition strategy that has transformed the company’s portfolio and created substantial value,” said Keith Cline, president and CEO of CorePoint. “This transaction continues our strategy of maximizing value and represents a compelling opportunity to deliver immediate and certain cash value to our stockholders. Our portfolio has accomplished a great deal over the past several years, and I would like to thank the entire team at CorePoint along with Wyndham, especially their operations field leaders, general managers and hotel staff, for the dedication, hard work and commitment to CorePoint.”
“The CorePoint board, in consultation with our independent financial and legal advisors, conducted a comprehensive review of strategic alternatives and unanimously determined that this transaction maximizes value for our stockholders,” said Mitesh Shah, CorePoint’s chairman of the board. “The resilience and achievements of CorePoint’s entire team have unlocked substantial value through a deliberate, noncore disposition strategy, and today’s all-cash sale represents a successful culmination of these efforts.”
“Highgate has tremendous respect for CorePoint and its highly experienced team, having observed the company strengthen, refine and cultivate a leading portfolio of select service hotels,” said Mahmood Khimji, co-chairman of Highgate. “We are thrilled to partner with our friends at Cerberus on another exciting transaction, through which Highgate will continue to enhance its capabilities in the select service space. We look forward to collaborating with the many associates and stakeholders involved towards a successful closing, and to working closely with the Wyndham Hotels team as we embark on the next chapter for this portfolio.”
Tom Wagner, head of North American real estate at Cerberus, commented: “Since separating from La Quinta Holdings, Inc. in 2018, the CorePoint management team has done an excellent job running the business, navigating the unprecedented COVID-19 pandemic, and strategically repositioning its portfolio. Alongside Highgate, we are excited for the opportunity to build on these positive strides and establish the company’s next chapter of growth as a private company.”
Timing and Approvals
The transaction is expected to close in the first quarter of 2022, subject to the approval of CorePoint’s stockholders and the satisfaction of other customary closing conditions. There is no financing condition to the transaction.
In connection with the transaction, affiliates of Blackstone—which own approximately 30 percent of CorePoint’s total shares outstanding—have entered into a voting agreement under which they have agreed to vote all of their shares in favor of the transaction.
Upon successful completion of the transaction, CorePoint’s common stock will no longer be listed on the New York Stock Exchange, and the company will be privately owned.
Wyndham's Agreements
Wyndham Hotels & Resorts has entered into a definitive agreement with CorePoint concerning the termination of all remaining Wyndham hotel management agreements upon consummation of the merger.
The termination is conditioned upon the closing of CPLG's sale. Upon termination of the HMAs, CPLG will pay termination fees to Wyndham of approximately $84 million.
"The termination of these management contracts will mark our exit from the lower margin, resource intensive select-service management business and afford us the opportunity to focus on the continued growth of our asset-light and highly profitable, cash generative franchising business," said Geoffrey A. Ballotti, president and CEO of Wyndham.
Wyndham's related franchise agreements are expected to remain in-place at the current fee structure (5 percent royalties plus 4.5 percent for marketing and reservation services).
Advisors
J.P. Morgan Securities is serving as lead financial advisor to CorePoint, Hodges Ward Elliott as co-advisor, and Simpson Thacher & Bartlett as legal counsel to CorePoint.
Deutsche Bank Securities is serving as financial advisor to Highgate and Cerberus. Additionally, Deutsche Bank and Bank of Montreal provided a debt financing commitment to Highgate and Cerberus on this transaction. Latham & Watkins and Kirkland & Ellis acted as legal counsel to Highgate and Cerberus.