In a move that officially takes its takeover plans formally hostile, Choice Hotels International has announced an exchange offer for all outstanding shares of Wyndham Hotels & Resorts.
The offer mirrors the previously announced terms Choice had offered Wyndham's board in November to acquire the Parsippany, New Jersey-based hotel brand company at $49.50 in cash and 0.324 of a share of Choice common stock for each Wyndham share for total consideration of $90 a share. The exchange offer gives Wyndham shareholders the option to take the payout in all cash, all stock or a combination of the two. The offer values Wyndham at roughly $8 billion.
In the news release announcing the offer, Choice disclosed the company has already purchased roughly 1.5 million shares of Wyndham common stock, valued at roughly $110 million.
If Choice is able to gain a controlling stake in Wyndham, the company could put members favorable to the deal on Wyndham's board. But Wyndham officials noted Choice's current holdings amount to less than 1.7% of their common stock and Choice is restricted from buying more without antitrust approval.
As of close of markets Monday, Wyndham's stock was trading at $79.56 a share with a market cap of $6.6 billion. Choice was trading at $113.81 a share with a $5.67 billion market cap.
"While we would have preferred to come to a negotiated agreement, the Wyndham Board's refusal to explore a transaction has left us with no choice but to take our proposal directly to Wyndham's shareholders," Choice President and CEO Patrick Pacious said in a statement. "Wyndham chose to publicly reject our last proposal without any engagement even after we addressed their concerns, including adding significant regulatory protections for their shareholders."
Wyndham's board shot down Choice's offer previously, saying that it was an attempt to take advantage of short-term fluctuations in stock prices and doesn't account for outsize regulatory risk assumed on the Wyndham side of a potential deal. Regulatory concerns stem from the fact the combined company, with 46 brands, would hold a dominant position in economy- and midscale-branded hotels and is likely to draw antitrust scrutiny.
Wyndham Chairman Stephen Holmes condemned Choice's overtures calling it "a desperate grab to try to solve problems that the company has."
"We are frankly not surprised," Holmes said during Wyndham's most recent earnings call. "Our business offers a medicine cabinet full of remedies. ... They're trying to make us an elixir for their problems. ... Our board has taken its fiduciary duties very seriously with respect to shareholders, and other stakeholders including franchisees, employees and guests. We strongly believe that Wyndham's stand-alone plan and multiple levers of growth provide a more compelling proposition compared to Choice's offer."
In a news release issued in response to Choice's exchange offer, Wyndham officials continued to push back against a potential deal for similar reasons. For the time being, Wyndham urged shareholders to take no action.
"The Board intends to advise shareholders of its recommendation regarding the offer within ten business days by making available to shareholders and filing with the U.S. Securities and Exchange Commission a recommendation statement on Schedule 14D-9," the news release read. "Wyndham shareholders are urged not to take any action with respect to the offer until the Board announces its recommendation."
Pacious said he remains open to negotiations with Wyndham's leadership.
"It remains our goal to reach a mutually agreeable transaction, and there is potential for additional value to be unlocked if Wyndham were to return to the negotiating table and provide due diligence. We look forward to meeting with Wyndham's shareholders in the days and weeks ahead and to continuing the regulatory approval process we're starting this week," Pacious said in a news release.
Choice also announced a "regulatory ticking fee" as part of their exchange offer that would increase the value of the exchange by $0.45 per Wyndham share each month in the event it takes more than a year for a deal to close.
"This additional consideration, which has been included so that Wyndham shareholders can receive benefits similar to what Choice previously offered in its Nov. 14, 2023, proposal in the unlikely event the transaction were to take longer than 12 months to close, would be payable in cash or stock, at Choice's election, upon Choice's acceptance and exchange of the Wyndham shares tendered into the offer," the news release states.
Choice is also continuing to extend the offer for a reverse termination fee of $435 million and two seats on the combined company's board — terms that were included in a rejected offer from November.
Choice officials said the exchange offer is valid until the close of business on March 8, 2024.