“A step backwards”: Wyndham rejects offer letter from Choice Hotels

Wyndham Hotels & Resorts has rejected an offer letter from Choice Hotels International, calling it “a step backwards.”

Last month, Choice Hotels sent a letter to its rival Wyndham, outlining a proposal to acquire its outstanding shares, at a price of $90 per share payable in a mix of cash and stock.

The proposal implied a total equity value for Wyndham of approximately $7.8 billion on a fully diluted basis

It would have been a major merger in the budget hotel universe, with a combined entity encompassing around 16,800 properties under Choice brands, such as Radisson, Quality Inn, Days Inn, Ramada, and Travelodge.

Wyndham, however, isn’t convinced that it’s a good idea. In a press release issued Tuesday (Nov. 21), Wyndham's financial and legal advisors said the parameters of Choice Hotel’s proposal are not in the best interests of the company and its shareholders.

READ MORE: Choice Hotels has offered to buy rival Wyndham for $7.8 billion

Wyndham says Choice representatives sent a letter on Nov. 14, outlining the terms of a potential merger, noting that it was the first communication in a month “since its public disclosure of its unsolicited proposal.”

The proposal, Wyndham says, continues to “undervalue Wyndham's standalone growth prospects.”

At Choice's current share price, its offer to acquire all outstanding shares of Wyndham stands at a value of $86 per share, which is below the nominal value of $90 per share initially proposed on Oct. 17.  

The letter proposes a two-year period for Choice to seek to obtain regulatory approvals supported only by a low 6 per cent reverse termination fee, “which would both create a prolonged period of limbo and expose Wyndham and its shareholders to significant asymmetrical risk,” Wyndham writes.

"Choice continues to ignore our major concerns around value, consideration mix, and asymmetrical risk to our shareholders given the uncertainty around regulatory timeline and outcome,” Stephen Holmes, chairman of the Wyndham Board of Directors, stated in the press release.

“In addition, Choice's existing proposal is valued at $86 per share, lower than the unsolicited public proposal of $90 per share they made a month ago. Given they now explicitly acknowledge the legitimate issues around the regulatory timeline, they are essentially asking our shareholders to take on serious risk and accept as compensation for a failed deal a low reverse termination fee that doesn't even begin to compensate for the potential lost earnings and long-term impairment to value that could occur during an uncertain two-year regulatory review.”  

Holmes went on to say that Wyndham will “always evaluate any serious proposal.”

“But Choice continues to fail to adequately address any of the three core issues we have repeatedly raised,” he said. “They have instead chosen to prolong this for months with a proposal that remains unfeasible, damaging to our business, and unnecessarily distracting to our management team."

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