This is significant — Choice is proposing acquiring Wyndham, in what’s essentially a hostile takeover attempt.
In this post:
Details of Choice’s proposal to buy Wyndham
Choice Hotels International has announced a proposal to acquire all outstanding shares of Wyndham Hotels & Resorts, at a price of $90 per share, payable in a mix of cash and stocks. For context, Choice is a hotel group with 7,500 properties, while Wyndham has 9,100 properties, so a combined hotel group would have a staggering 16,600 hotels. Both companies are primarily focused on the budget market.
Under Choice’s proposal, the $90 per share to be received by Wyndham shareholders would consist of $49.50 in cash and 0.324 shares of Choice common stock for each Wyndham share they own. This implies a total equity value for Wyndham of approximately $7.8 billion on a fully diluted basis, and with the assumption of Wyndham’s net debt, the transaction is valued at approximately $9.8 billion.
This proposal represents a 26% premium to Wyndham’s 30-day volume-weighted average closing price ending on October 16, 2023, an 11% premium to Wyndham’s 52-week high, and a 30% premium to Wyndham’s latest closing price.
For the past six months, the two budget hotel giants have been in talks about a possible acquisition. However, Wyndham’s management chose to disengage in these discussions, which is why Choice is now going public with this proposal. Choice shares the following details about the negotiations that had been taking place:
- In April 2023, Choice proposed acquiring Wyndham for $80 per share, including 40% cash and 60% Choice stock; Wyndham rejected the proposal, and refused to engage further
- In the weeks following, Choice increased its offer to $85 per share, comprised of 55% cash and 45% Choice stock
- After that, Choice improved its offer yet again with a best and final offer of $90 per share, comprised of 55% cash and 45% Choice stock
- Wyndham raised questions regarding the value of Choice stock and timing for obtaining regulatory approval, and Wyndham fully ended discussions at that point
Here’s how Choice Hotels CEO Patrick Pacious describes this deal:
“We have long respected Wyndham’s business and are confident that this combination would significantly accelerate both Choice’s and Wyndham’s long-term organic growth strategy for the benefit of all stakeholders. For franchisees, the transaction would bring Choice’s proven franchisee success system to a broader set of owners, enabling them to benefit from Choice’s world-class reservation platform and proprietary technology to drive cost savings and greater investment returns. Additionally, the value-driven leisure and business traveler would benefit from the combined company’s rewards program, which would be on par with the top two global hotel rewards programs, enabling them to receive greater value and access to a broader selection of options across stay occasions and price points.”
“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. 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. Importantly, we remain convinced of both the many benefits of the combination and our ability to complete it.”
The value in a Choice & Wyndham merger
Choice is arguing that this proposal provides important benefits for stakeholders of both companies, including franchisees, shareholders, employees, and guests. Let me share the points that Choice is making (I’m not sure I agree with all the conclusions, but…).
Choice argues that franchisees win with lower total cost of ownership and increased hotel profitability:
- Capitalizes on Choice’s proven franchisee success system, dedicated to driving incremental topline reservation delivery to hotel owners’ properties, while lowering the total cost of hotel operations
- Nearly doubles the resources available to spend on marketing and driving direct bookings to franchisees’ hotels, lowering the cost of customer acquisition
- Establishes an even larger rewards member base on par with the top two global programs in hospitality
- Drives more business to franchisees through lower cost direct booking channels, lower customer acquisition commissions and fees, and lower hotel operating costs and technology-driven labor efficiencies, while continuing to determine their own commercial and pricing strategy
- Improves the value of franchisees’ real estate assets by enhancing applicable cap rates and cash flows resulting from affiliation with the proforma company
- Reduces friction by offering guests a broad portfolio of brands across segments, no matter their stay occasions, within a single system
- Promotes increased investment and innovation in proprietary technology systems, processes, and training at the hotel and corporate level, which drives returns for Choice franchisees
- Creates an opportunity to replicate the tremendous success of Choice’s recent acquisition of Radisson Hotel Group Americas; during the integration of the nearly 600 Radisson Americas hotels into the Choice platform, Radisson’s franchisees have already meaningfully benefited from increased guest traffic to direct and digital channels, improvement in conversion rates, and access to more corporate accounts, among other benefits
Choice argues that shareholders win with superior value creation:
- Represents a 26% premium to Wyndham’s 30-day volume-weighted average closing price ending on October 16, 2023, an 11% premium to the 52-week high, and a 30% premium to the latest closing price
- Anticipates meaningful annual run-rate synergies, estimated at approximately $150 million, through the rationalization of operational redundancies, duplicate public company costs, and topline growth potential
- Enables Wyndham shareholders to benefit from Choice’s historically 3x higher EBITDA multiple on a go-forward basis and receive deferred tax treatment on their stock consideration
- Creates additional capacity to further support Choice’s revenue intense strategy, ultimately helping drive growth across its organic revenue levers
- Generates predictable high free cash flow through an asset-light, fee-for-service model, providing resiliency through all economic cycles and enabling additional investments for future growth
- Offers Wyndham two seats on the combined company’s board and Wyndham shareholders the opportunity to participate in the significant upside potential of the combined company
- Cash/stock consideration mechanism enables Wyndham shareholders to choose between immediate upfront proceeds or long-term value creation, subject to a customary proration mechanism
Choice argues that guests win with more lodging options and value:
- Creates a combined rewards program on par with the top two global programs in hospitality and will offer best-in-class program benefits through partnerships and compelling hotel redemption options
- Builds a global network of brands and hotels that meets the needs of the value-driven traveler across geographies, stay occasions and price points, supported by a seamless reservation system that provides guests with a more effective and efficient booking and shopping experience
- Improves data analytics, enabling the combined company to personalize communications and tailor recommendations to best meet the needs of the up to 160 million combined rewards program members
Choice argues that employees win with expanded opportunities and increased stability:
- Offers the ability to retain and attract “best-in-class” talent to one of the world’s premier hotel companies focused on employee well-being, bringing together a wide range of experience and deep industry expertise
- Provides more opportunities for advancement and career growth as part of a larger, more diversified organization
- Combines two performance-driven cultures with a continued emphasis on associate development and growth
My take on Choice acquiring Wyndham
Choice acquiring Wyndham would create by far the world’s largest hotel group in terms of number of properties (though not necessarily in terms of number of rooms). In the economy and midscale market in the United States, the combined hotel group would have roughly 50% market share, which is unheard of.
Along those lines, I have a couple of thoughts, as we look at the details of this proposal.
First of all, I can’t help but wonder if Choice may receive pushback from regulators regarding this, as we’ve seen the Biden Administration try to block mergers in some other industries (like trying to block JetBlue’s takeover of Spirit).
Admittedly hotel groups merging is different than airlines merging. Individual hotels still have to compete with one another, even if they’re managed or franchised by the same company. Still, Choice has already bought Radisson Americas, and now wants to consolidate even further, and could get around 50% market share in its segment. I have to imagine there will be pushback here.
The other thing is that I don’t actually fully see the merit to this takeover, other than short term stock gains for investors, and general synergies? Isn’t the whole point of the major hotel groups and major hotel loyalty programs to compete with one another, and to give guests an incentive to stay with them over a competitor?
When you suddenly have dozens of limited service brands in one city all belonging to the same hotel group going after the same consumers, that seems to me like it would be bad for individual property owners, rather than good.
We’ve seen so much hotel brand inflation over the years (where hotels create more and more brands), and then on top of that you see mergers, causing some hotel groups to have brands that duplicate one another.
Bottom line
Choice has proposed acquiring Wyndham for $90 per share. Wyndham’s management isn’t receptive to a takeover, so Choice is now going directly to shareholders, in hopes of them approving the deal. Choice has already been growing, with its recent acquisition of Radisson Hotel Group Americas, and now this would make the hotel group even bigger.
I’m curious to see how this plays out, especially with Wyndham management so vehemently opposed to the takeover, and with potential regulatory challenges.
What do you make of Choice attempting to acquire Wyndham? Do you see this getting regulatory pushback?
Boo, this is anti-consumer. Enough with the consolidations in the travel space. We need new startups.
Currently, Wyndham has 18 brands and Choice with 12.
Bigger is not always better.
Lots of over lap and hotels competing with one another in metropolitan areas.
Choice may need to spin off some brands just to keep focused on customer satisfaction, franchise harmony, and satisfying the current regulatory environment.
Also, lack of consistency within a brand. Something Holiday Inn controlled with an iron fist in its early days and gained...
Currently, Wyndham has 18 brands and Choice with 12.
Bigger is not always better.
Lots of over lap and hotels competing with one another in metropolitan areas.
Choice may need to spin off some brands just to keep focused on customer satisfaction, franchise harmony, and satisfying the current regulatory environment.
Also, lack of consistency within a brand. Something Holiday Inn controlled with an iron fist in its early days and gained a positive reputation for at the time. Yet, something soooo lacking today with resort fees, environment recovery fees, mandatory tipping fees, denied privileges, hap hazard linen service, etc.
Sad, but I find AirB&B more consistent!
Pure and simple, a would-be cartel designed to fix (elevate) prices in that market segment. It’s naïve to believe anything else, particularly the part about how consumers will benefit.
"Choice’s world-class reservation platform"
This is getting very interesting.
Over the last 4-5 years, I've often mused on the possibility of IHG making a bid for Choice, which would have broadened IHG's reach into the lower end of the IHG market and filled out their range of hotels.
That seemingly finished when Choice acquired Radisson and showed their teeth.
Should this hostile merger actually succeed (and there are regulatory issues that may well prevent it, as...
This is getting very interesting.
Over the last 4-5 years, I've often mused on the possibility of IHG making a bid for Choice, which would have broadened IHG's reach into the lower end of the IHG market and filled out their range of hotels.
That seemingly finished when Choice acquired Radisson and showed their teeth.
Should this hostile merger actually succeed (and there are regulatory issues that may well prevent it, as stated) then that could open up a whole new case of angst or worms. It would leave both IHG and Hyatt exposed as two similarly capitalized groups, both looking to expand (IHG today at USD$12.4 billion and Hyatt at USD$ 11.2 billion).
Hyatt is primarily owned by the Pritzker family - and IHG has notably been buying back it's own shares for many months now. Is someone assembling a 'war-chest' or would a family-owned chain decide to 'take the money and run'?
So, the concentration or merger of lower-priced chains could conceivably see movement in the mid-scale market as well (depending on how the Justice Department feels on any given morning). Popcorn, anyone?
Waiting for Tim Dunn to see if he can do any financial analysis on anything besides Delta.
A merger of a company with a bunch of poor and/or mediocre brands with poor corporate customer service merges with a company with a mediocre brand with poor corporate customer service.
Wyndham seems to have just collected a bunch of brands over the years, and most of them compete against one another for the most part, and Wyndham really doesn't seem to know what to do with them. Many of their hotels, including their Wyndham branded hotels, seem so dated and tired.
"Improves data analytics, enabling the combined company to personalize communications"
Oh, yippee ! :-(
Skift’s article about that has an interesting chart showing market share by segment. A combined Choice/Wyndham would have around 50% of economy and 60% of midscale (not sure of these numbers reflect Radisson). For reference, Marriott has around 50% of upper upscale.
It will certainly get antitrust scrutiny, and I would expect franchise associations especially AAHOA to put up astronomical resistance. that group represents a lot of hotels and is already not speaking with Marriott,...
Skift’s article about that has an interesting chart showing market share by segment. A combined Choice/Wyndham would have around 50% of economy and 60% of midscale (not sure of these numbers reflect Radisson). For reference, Marriott has around 50% of upper upscale.
It will certainly get antitrust scrutiny, and I would expect franchise associations especially AAHOA to put up astronomical resistance. that group represents a lot of hotels and is already not speaking with Marriott, so I’d they’ll fight like hell to not have another massive powerful franchisor that would reduce their leverage.
Lot of finance-heavy copy-and-paste from the deal announcement, but little analysis from Ben and his team. If this wasn't AI generated, it could have been.
Why bother with AI, when copy/paste is so easy to do and fills the need?
And, Ben's strong suit is definitely not financial analysis.
My first thought was, "this couldn't get regulatory approval could it?" The acquisition would make Choice the largest hotel chain (and they would more than double their current size) and they would completely dominate the budget market.
@Tom - precisely. For all of the hand-wringing and public negotiating on share price, the ultimate concern is the regulatory issues raised by the exuberant and irrational current regime at the FTC. Hard to argue that consolidation of these two brands are going to create any kind of monopolistic power, particularly with every other hotel brand expanding to 30+ indistinguishable brands (many of which play in the lower-mid to mid-tier strata).
You would think they will get anti-trust pushback. The combined group will be 2x the next biggest (Marriott) by number of properties. Granted it may not be 2x the number of rooms, but all those rooms are concentrated in the same market segment, unlike Marriott which is diversified across a wider range of segments.