Wyndham Hotels & Resorts rejected an unsolicited $8 billion buyout offer from Choice Hotels, a smaller chain that sent a letter to Wyndham shareholders Tuesday after negotiations broke down.
Wyndham, which runs Days Inn, La Quinta, Ramada and a host of other brands, said Tuesday that the proposal is “opportunistic” and undervalues its future growth potential. The offer was rejected unanimously by its board, the company said.
“Choice's offer is underwhelming, highly conditional and subject to significant business, regulatory and execution risk. Choice has been unwilling or unable to address our concerns,” Wyndham Chairman Stephen Holmes said in a prepared statement.
Holmes said Wyndham has engaged with Choice and its advisors multiple times to explore the risks of a potential deal, but realized that it would likely take more than a year to determine if, and on what terms, the proposed transaction could clear antitrust review.
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Earlier Tuesday, Choice Hotels International asked g Wyndham shareholders to sign off on the proposed deal after six months of negotiations between the two broke down.
“A few weeks ago, Choice and Wyndham were in a negotiable range on price and consideration, and both parties have a shared recognition of the value opportunity this potential transaction represents, said Choice CEO Patrick Pacious. ”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."
Choice, based in Rockville, Maryland, is offering $49.50 in cash and 0.324 shares of Choice common stock for each Wyndham share they own, a 20% premium to Wyndham's last closing price.
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Choice's proposal allows Wyndham shareholders to choose either cash, stock, or a combination of cash and stock. The proposal also includes giving Wyndham two seats on the combined company’s board.
The deal has a total value of about $7.8 billion. When including debt, it's valued at approximately $9.8 billion.
C. Patrick Scholes of Truist Securities said in a note to clients that he believes Choice is making an attractive offer to Wyndham's shareholders, but that Holmes, who is very well versed in mergers and acquisitions, may be “strategically holding out for a somewhat better offer from Choice or from someone else.”
Choice first approached Wyndham in April, offering $80.00 per share, with 40% of that cash and 60% Choice stock, but was rejected, Choice said.
It bumped the offer to $85 per share, then to $90 per share as the board chairs and CEOs of each company met. But, according to Choice, Wyndham voiced concerns about regulatory approval in September and also the value of Choice stock.
Choice operates about 7,500 hotels in 46 countries. It's seeking to absorb a much larger chain in Wyndham, which operates nearly 9,300 hotels under a host of brands including La Quinta, Ramada, Super 8 and Travelodge.
Wyndham, based in Parsippany, New Jersey, posted a profit of $355 million last year with revenue of $1.5 billion.
Like most hotels, it has benefited from booming travel in recent years. The uptick in travel has lead to snarled airports and pilot shortages. That has cooled a bit this year as people become more cost conscious about their trips due to inflation and after spending more freely for more than a year.
Wyndham's shares are up more than 170% since it stock price tumbled close to $25 each at the start of the pandemic.
Shares of Wyndham Hotels & Resorts Inc. jumped more than 6% in afternoon trading on Tuesday.
Shares of Choice Hotels International Inc. fell more than 5%.
