Choice Hotels International’s pursuit of Wyndham Hotels & Resorts continues to heat up, and an analyst says the former’s decision to engage in a hostile takeover was the logical next step in the process.
Choice announced an exchange offer for all outstanding shares of Wyndham on Tuesday, officially making its pursuit a hostile takeover. C. Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities, said Choice’s latest move is “escalating it to the next level.”
“You gotta do it the easy way or the hard way, and now comes the harder way,” he said.
Scholes said there hasn’t been a hostile takeover attempt such as this one in the hospitality space in recent memory. But given Wyndham’s share price and its reluctance to have friendly discussions, this is the path Choice had to take to show it’s serious in its pursuits.
Choice’s offer of $90 per share — $49.50 in cash and 0.324 shares of Choice common stock for each Wyndham share — has remained the same since its last private offer to Wyndham in August. As of press time, Wyndham’s stock is trading at $78.31 per share while Choice’s stock is trading at $111.54.
“Wyndham had been trading at a sizable discount to Choice, and myself as an analyst always thought Wyndham should be valued closer to where Choice was trading,” he said. “[With Choice’s latest offer] you might get that valuation, [and] if you’re Wyndham Hotels, you might not like how you got there, but here we are.”
Scholes said Choice is merely testing the waters with this price, but investors he’s spoken to are seeking a higher one.
“It’s been fairly consistent — what I’ve been hearing the last couple of months is [there are] two things investors would like: $95 [per share] or more, number one. And number two, an all-cash offer,” he said.
The two brands have publicly thrown jabs back and forth since Choice officially went public with its offer in October, but there’s still a chance they return to the negotiation table given the current nature of the offer, Scholes said.
“I still think Choice would rather do it the amicable way because at the end of the day, if this goes through, they’re going to be acquiring Wyndham and you want a friendly relationship with your partner,” he said.
Scholes said in an email to investors that Choice shareholders are optimistic the deal will go through, but investors were underwhelmed by the price of the deal remaining at $90 per share.
"High-level, our impression is that [Choice] is confident on a deal closing in advance of the ticking fee (less than one year from now) and with regulatory approval," he said. "That said, investor inbounds to today's announcement, the investor presentation and filing were mixed, with perhaps unfulfilled hope that [Choice] would sweeten the previous [Wyndham] offer."