Choice Hotels International executives have abandoned a hostile takeover bid of competitor Wyndham Hotels & Resorts, stating the shareholder response to an exchange offer did not offer a path to success.
The hotel franchising company also withdrew its slate of candidates for Wyndham's board of directors and is refocusing capital on a share-repurchase program, increasing that from 1.8 million shares to 6.8 million.
Choice first publicly announced its pursuit of Wyndham in October, offering $7.8 billion in cash and stock and $2 billion in debt assumption, after claiming the two companies had been in talks since April but Wyndham's board had refused to engage in further negotiations.
At that point, Wyndham executives refuted Choice's timeline, noting they've been open to engaging on a potential combination if Choice was more willing to address their list of concerns around a deal. Wyndham Chairman Stephen Holmes decried Choice's tactics as a cynical attempt to take advantage of the two companies' share prices at a specific point in time.
In December, Choice took its pursuit of the deal hostile with an exchange offer of $90 a share in combined cash and stock for all available Wyndham shares. Wyndham executives continued to balk at a potential deal, claiming it represented too much regulatory risk and that Wyndham has a better path to growth as a stand-alone company. A month later, Choice proposed a full slate of Wyndham board members who would be in favor of a deal.
Choice stated in a news release that the response to the exchange offer, which expired Friday, was "significant" but "not sufficient" to successfully complete its takeover bid.
'Extraordinary Step'
"Given Wyndham's refusal to constructively and substantively engage on terms, Choice took the extraordinary step of launching the exchange offer to initiate the regulatory review process and engage with Wyndham stockholders," the news release reads.
"While the support from Wyndham stockholders tendering into the exchange offer was significant considering the number of investors structurally prevented from participating at this stage, it was not sufficient for Choice to conclude — particularly when taking into account the Wyndham board's obvious continuing disinterest in a combination — that a path towards a transaction is available at this time. As such, Choice has decided not to extend the exchange offer and is withdrawing its slate. Choice intends to continue focusing on its stand-alone strategy, which the company is confident will create significant long-term value for its stockholders and franchisees."
Choice executives said they decided not to purchase any shares through the exchange offer in part because the minimum tender condition was not met. The company previously announced it had acquired approximately 1.5 million shares of Wyndham's common stock and was undergoing a federal regulatory review to purchase more.
Wyndham executives welcomed the news this morning, with President and CEO Geoff Ballotti noting the company is "focused on moving ahead with the execution of our strategic plan, building on our success and generating meaningful value.
"We look forward to doing so without the unnecessary distraction of this situation and disruption to our business," Ballotti said in a public statement. "We would like to thank our shareholders and franchisees for their continued support and our team members for their dedication and focus throughout this process."
"The Wyndham Board is pleased that Choice has ended its hostile pursuit and proxy contest, following the expiration of its unsolicited exchange offer," Holmes said. "We are confident in Wyndham's stand-alone strategy and growth prospects under the leadership of our proven management team. The board remains committed to acting in the best interests of our shareholders and driving superior long-term value creation."
Criticism of Pursuit
Before Choice's announcement Monday morning, Wyndham continued to criticize Choice's pursuit, calling the offer "inadequate and uncertain" in a letter to shareholders.
"Your board has been explicitly clear that — in order to make a proposal viable for shareholders — Choice must adequately address the three key issues we have repeatedly raised: insufficient valuation, unattractive consideration mix, [and] asymmetrical regulatory risk," the letter reads. "Despite our efforts to engage, Choice has demonstrated that it is unable, or simply unwilling, to propose a complete offer package addressing these key issues."
Throughout the process, Choice Hotels President and CEO Patrick Pacious expressed confidence that a deal would get done. During Choice's most recent earnings call, Pacious said that a potential deal "continued to see support from our franchisees."
That statement ran at odds with the public opposition of a deal by the Asian American Hotel Owners Association, which represented significant numbers of franchisees for both Choice and Wyndham.
AAHOA President and CEO Laura Lee Blake said members of that organization were worried about the dominant position a combined Choice-Wyndham would have in the economy and midscale segments.
“The thought that one franchisor would have such a dominant role in those segments raises some high concerns across the membership,” she said on the Hotel News Now podcast.
As of press time, Choice reported a portfolio of 7,500 hotels with roughly 630,000 rooms, while Wyndham had a portfolio of 9,200 hotels with 872,000 rooms.
Potentially Dominant Player
A combination of the two hotel branding companies would've created a dominant player in economy and midscale hotels in the U.S., which was the major reason why Wyndham's board held deep concerns about antitrust scrutiny over a possible deal.
Acquiring Wyndham would have also boosted Choice's international portfolio. Choice currently has a presence in 46 countries, which is less than half than the 95 countries with Wyndham properties.
In 2022, Choice bought the Americas division of Radisson Hotel Group for $675 million.
Wyndham, meanwhile, has publicly stated plans to grow more organically, most recently with the January launch of a new strategic alliance with SBE and Marc Anthony's investment group Magnus to create a new lifestyle brand temporarily dubbed Project HQ Hotels & Residences. SBE had sold off its hotel brands in 2020 to Accor.
Since Choice's pursuit of Wyndham first went public last year, industry analysts have said true hostile takeover attempts have been a rarity in the hotel industry. No such deals have been completed in recent memory, said C. Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities.
Scholes said at the time Choice took the deal hostile that the company wasn't offering what Wyndham shareholders really wanted.
“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, No. 1. And No. 2, an all-cash offer,” he said.
Choice's $90 a share offer consisted of $49.50 in cash and 0.324 shares of Choice common stock for each Wyndham share.