Choice prepares to buy Wyndham stock, take board seats: Reuters

NATIONAL REPORT – Reuters reported on Monday that Choice Hotels International is planning to soon increase its share stake in Wyndham Hotels & Resorts, which would give it the right to nominate directors to Wyndham’s board in January and therefore bring more pressure to further negotiate a deal for its proposed acquisition.

Anonymous sources told Reuters that Choice has started to interview potential nominees for its board slate and launch a tender offer for Wyndham's shares that would show Wyndham's investors that there is a firm offer on the table.

The Reuters report also stated that Choice could drop these more aggressive plans if Wyndham decides to negotiate a deal.

Hotel Investment Today reached out to Choice Hotels for confirmation of this report and responded with a statement that said, “We are committed to reaching a transaction with Wyndham and we intend to pursue all paths available to us to get there.”

Wyndham said on Monday that it had nothing to add to the new report, referring back to its statement of November 21.

Just last Tuesday, Wyndham responded to an updated offer from Choice Hotels, stating that its offer “was a step backward,” falling short on the share offer price and termination fees.

Taking it a step further, Wyndham Chairman Stephen Holmes called out Choice for exploiting the uncertainty around Wyndham to seek a competitive advantage in the market for franchisees and development partners.

Wyndham stated that at Choice’s current share price, its offer to acquire all outstanding shares of Wyndham stands at a value of $86 per share, below the $90 per share proposed on October 17, the date of Choice’s public disclosure.

The Choice letter also proposed a two-year period for it to seek to obtain regulatory approvals supported by a 6% reverse termination fee, which Wyndham said would both create a prolonged period of limbo and expose Wyndham and its shareholders to significant asymmetrical risk.

More specifically, Choice was offering Wyndham reverse termination fee of $435 million. While Choice does not anticipate it would be triggered, it is also offering a regulatory ticking fee of 0.5% of the total equity purchase price per month, accruing daily after the one-year anniversary of the signing of definitive agreements.

Choice said the offer represents a 31% premium to your unaffected share price on May 22, 2023 (prior to WSJ leak) and a 24% premium to your share price as of the Pre-Release Date based on Choice's current stock price, and 37% and 30% premiums, respectively, based on Choice’s stock price as of the Pre- Release Date.

The offer maintains the cash or stock election mechanism, subject to a customary proration mechanism. It equates to pro forma ownership in the combined company of 35%. It also implies a consensus 2023 Adjusted EBITDA multiple of 14.9x based on the Pre-Release Date value.

As part of Wyndham's response, interestingly, it did suggest an all-cash deal would alleviate certain valuation-related risks.

At the same time, Choice also suggested a potential next step if the two sides cannot engage in further discussions is a proxy contest or exchange offer, without prior notice.

Choice Hotels CEO Patrick Pacious said the industrial logic of the transaction is irrefutable, pro-competitive and the required regulatory approvals are obtainable. “In addition, our franchisees, many of whom own both Wyndham and Choice brands, have instantly grasped the benefits of this combination, particularly in light of rising operational costs. This combination will drive more direct bookings, lower hotel operating costs, and create a stronger rewards program. As such, we believe now is the right time to reengage in a direct and private dialogue in order to negotiate a transaction that is in the best interest of all our respective stakeholders.”