Wyndham Hotels & Resorts' Board of Directors is advising its shareholders to reject Choice Hotels International's latest move to acquire the company.
Choice officially took its pursuit of Wyndham hostile in the past week by announcing an exchange offer for all outstanding shares of the Parsippany, New Jersey-based hotel brand company.
Choice offered to acquire Wyndham at $49.50 in cash and 0.324 of a share of Choice common stock for each Wyndham share, for a total consideration of $90 per share. The offer values Wyndham at approximately $8 billion.
The exchange offer gives Wyndham shareholders the option to take the payout in all cash, all stock or a combination of both.
Wyndham announced Monday morning that its board of directors followed a comprehensive review of the offer with its outside financial and legal advisers but unanimously determined the unsolicited exchange offer is not in the best interest of Wyndham shareholders.
"Choice has, once again, failed to address the major value gap and risks of their offer — which remains virtually unchanged from the terms outlined in their previous unsolicited proposal," Stephen Holmes, chairman of Wyndham's board, said in a news release. "The core issues we have articulated remain the same: a likely prolonged regulatory review period of up to 24 months with an uncertain outcome; the pure inadequacy of the offer from a valuation standpoint, including the significant equity component of Choice stock; and the lack of consideration for Wyndham's superior, stand-alone growth prospects."
Wyndham outlined the antitrust risks that Choice's latest offer presents.
Wyndham's board stated the offer involves an uncertain regulatory timeline and fails to provide sufficient protections and compensation for asymmetrical risks Wyndham shareholders would face.
The offer is "inadequate and undervalues Wyndham's superior, stand-alone growth prospects," according to the board.
Wyndham's board also stated that Choice's stock is at risk of further price degradation. If a transaction took place, Choice's leverage level would exceed all other lodging companies' average leverage ratios. This would negatively affect the value of the equity consideration in Choice's offer as well as limit Choice's potential to invest in future growth.
Choice portrays Wyndham's growth potential as $9 per share, which Wyndham's board said is an "egregious mischaracterization and fails to reflect the outlook Wyndham provided in its October investor presentation, which provides the road map for an incremental $20 per share from [earnings before interest, taxes, depreciation and amortization] growth potential over the next two years with an additional $16 per share from the deployment of available capital during that period."
Additionally, Choice's latest offer is subject to many conditions, making completion of the offer highly uncertain, Wyndham contends.