Choice Hotels International, Inc. has called upon the board of directors of Wyndham Hotels and Resorts, Inc. to engage in good faith discussions so that shareholders of both companies can benefit from the compelling combination.
Patrick Pacious, President and Chief Executive Officer of Choice, said the company appreciates the positive feedback it has received since first making its proposal public, particularly the support from both companies' shareholders and franchisees.
“Through our conversations with these stakeholders, we are encouraged by their clear understanding of the natural fit of the two businesses and belief in the combined company's ability to drive greater shareholder returns, franchisee profitability, and strategic benefits,” said Pacious.
“They, and others, share our perspective that a transaction is pro-competitive, has a clear path to completion, and creates a combined company with a strong free cash flow profile to support both rapid deleveraging and investments for growth."
Pacious continued to say that executive members of Choice respect Wyndham's desire to achieve the best outcome for its shareholders, but that can't happen if Wyndham unilaterally ends discussions with Choice.
Both companies' shareholders have expressed their understanding of the tremendous value this combination could deliver. As recently as a few weeks ago, Wyndham prepared a critical information request list, on which both parties broadly aligned, to help Choice and Wyndham close any remaining value gaps. Wyndham then disengaged before any information was exchanged.
“We, therefore, strongly urge Wyndham to return to the discussions. Choice is ready to move expeditiously to negotiate binding terms, including mechanisms to provide market standard protections for Wyndham shareholders."
The compelling proposal of $90.00 per share represents a 14.9x multiple of Wyndham's consensus 2023 EBITDA estimates, a forward multiple that Wyndham has never achieved absent COVID disruptions. Furthermore, the consideration mix would allow Wyndham shareholders to both realise immediate value creation and share in the significant upside potential of the combined company. The $150 million synergy opportunity alone is expected to translate into more than $2 billion in shareholder value creation.
The Choice management team has a strong history of shareholder value creation through organic growth and acquisitions. Since 2017, the Choice management team has delivered market-leading revenue and Adjusted EBITDA growth CAGR of approximately 10 percent and successfully integrated the Radisson and WoodSpring Suites acquisitions. Additionally, the Choice management team has driven strong stock price performance compared to Wyndham's performance since its spin-off in 2018, generating three times the value for its shareholders. Choice's stock has historically traded at a higher multiple of approximately three turns compared to Wyndham, which would allow Wyndham shareholders to participate in incremental value creation following the completion of the transaction. From 2019 to 2022, Choice's unique strategy generated Adjusted EBITDA growth of 28 percent compared to Wyndham's six percent.
Choice believes its existing offer rewards Wyndham shareholders well in excess of the present value that could be achieved through a rational Wyndham standalone plan.
The combined company would enhance competition against larger industry participants with strong balance sheets and an established market presence across multiple segments. Many of these competitors have launched brands focused on the Economy and Midscale segments and are actively marketing to hotel owners in those segments. Large, branded alternatives for hotel owners and guests are already present across the Economy and Midscale segments, including Best Western, Extended Stay America, G6 (Motel 6), Oyo, Red Roof Inn, and Sonesta, which would continue to provide multiple options to both current franchisees or hotel owners considering adopting a brand. Many hotel owners choose to be independent, and in fact, independent hotels comprise nearly two-thirds of the Economy segment and close to 40 percent of the Midscale segment.
Significantly, unlike businesses with centralised pricing, all Choice and Wyndham hotel franchisees have complete autonomy to set their own prices. This consumer-friendly, pro-competitive structure would continue following the transaction close. Franchisees, most of whom are small business entrepreneurs, are expected to receive significant benefits from the expanded system size and synergies that a Choice-Wyndham combination would provide. The proposed transaction is expected to lower franchisee costs by increasing direct bookings and creating a rewards program on par with the top two global hotel rewards programs. Reducing reliance on third-party distribution channels and increasing rewards for member guests has been a proven formula for improving hotel profitability.
Wyndham is yet to return to the negotiating table.
