Choice Hotels International of Rockville, Maryland continues its pursuit even after its target, Wyndham Hotels & Resorts of Parsippany, New Jersey, turned down its latest unsolicited acquisition bid, in mid-October.
According to Choice officials, the $7.8 billion cash-and-stock offer and the assumption of Wyndham’s debt was an attempt to bring Wyndham’s approximately 9,100 hotels and 24 brands into Choice’s portfolio of more than 7,400 hotels and 22 brands and drive more than $100 million in cost savings.
“We believe our proposal will result in a combined company that has the financial flexibility to continue to invest in long-term growth initiatives to drive significant value creation for its shareholders and other constituents and will be well-positioned to weather any unforeseen macroeconomic challenges,” wrote Choice CEO Patrick Pacious, in an August letter to Wyndham’s board.
In private discussions, which began in April, Choice initially offered $80 per share of its rival before raising it to $85 per share and eventually to $90 per share.
Nonetheless, Wyndham’s board concluded that such a transaction would involve significant business and execution risks, such as an uncertain outcome, extended reviews by regulators, and potential franchisee churn.
The company’s chairman, Stephen Holmes, found the offer underwhelming since it undervalued his company’s growth potential, he said in a public statement. “Choice has been unwilling or unable to address our concerns. While our Board would support a value-maximizing transaction, given the substantial, unmitigated embedded risks and value destruction potential presented by the proposed transaction, our Board determined it is not in the best interests of Wyndham shareholders.”
Still, some industry analysts view the offer as a good deal. “Strategically, we continue to believe a merger makes long-term sense,” wrote R.W. Baird analyst Michael Bellisario in a note shared with the press. “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 not to continue pursuing this transaction,” said Choice’s Pacious. “Importantly, we remain convinced of both the many benefits of the combination and our ability to complete it.”