Good choice? Hotel chain bails on Wyndham takeover bid
Choice Hotels International (NYSE:CHH) cancels bid to acquire competitor Wyndham Hotels and Resorts (NYSE:WH) this week withdrew from negotiations that had turned hostile in recent months.
Investors seemed almost relieved on both sides, as stock prices for both companies rose after the deal officially fell apart. Clearly, the general sentiment seemed to be that it was time to move on.
hostile takeover
The two budget hotel chains have been negotiating for nearly a year, starting in April 2023, but things just came to a head in October when Choice announced a bid to buy the remaining Wyndham shares for $90 per share, or 45% of the stock. It has been revealed. 55% is cash. Choice’s idea was to create a discount hotel giant that could compete with larger hotels such as Marriott (NASDAQ:MAR), Hilton (NYSE:HLT), and Hyatt (NYSE:H).
But Wyndham didn’t see it that way. The hotel chain’s board rejected the offer, saying it was “not overwhelming, highly conditional and subject to significant business, regulatory and execution risks.”
Relations did not improve from there.
Choice put forward an exchange offer in December, making its case directly to Wyndham shareholders with the offer set to expire on March 8.
“The exchange offer provides Wyndham shareholders with the opportunity to receive consideration in all cash, all shares, or a combination of cash and shares, pursuant to a customary pro rata arrangement,” Choice officials said in a press release.
Wyndham responded a few days later, recommending that shareholders reject the exchange offer for the same reasons as before. The company said the proposal undervalued its assets, was subject to lengthy regulatory review and was fraught with antitrust risks.
The choice is to unplug.
Fast forward to March 11, three days after the exchange offer expired, and Choice officially closed its bid to acquire Wyndham.
“While support from Wyndham shareholders to participate in the exchange offer has been significant given the number of investors structurally blocked from participating at this stage, it is sufficient for the option to be concluded, especially given the Wyndham board’s apparent continued indifference to the combination. I didn’t. — A path toward a deal is now available, officials said in a statement.
Reuters reported that the swap proposal received support from less than 20% of Wyndham shareholders. Choice also withdrew its slate of candidates it nominated to serve on Wyndham’s board.
“We are pleased that Choice has ended its hostile pursuit and proxy contest following the expiration of its unsolicited exchange offer,” said Stephen Holmes, Chairman of the Wyndham Board of Directors.
“We are confident in Wyndham’s standalone strategy and growth prospects under proven management leadership,” he added.
The Federal Trade Commission (FTC) also expressed relief over the failed takeover attempt. The merger of two budget hotel brands creates one major competitor in the mix, reducing competition.
“We are pleased that Choice Hotels International has given up its efforts to seize control of its competitor, Wyndham Hotels & Resorts,” said FTC Competition Bureau Director Henry Liu. . “The FTC was closely examining not only Choice’s public offering, but also its efforts to replace Wyndham’s board with a handpicked slate of candidates. “Each of these actions raised serious competitive concerns, and abandoning them is a win for consumers.”
Where do things go from here?
Wyndham clearly didn’t see the value in this marriage from the beginning, and neither did its shareholders. At least in terms of the proposals presented. The company’s shares have risen about 5% since Monday morning, and were up 1.5% on Tuesday, at about $79 per share.
Choice shares surged about 7% a few hours after the exchange offer expired on March 8, suggesting relief among Choice shareholders that a deal had not gone through. Since Monday, the company’s stock price has fallen about 3% to $126 per share, but has remained elevated since last Friday.
Of the two stocks, Wyndham appears to have more upside, with a price-to-earnings ratio of 18, slightly lower than Choice’s forward P/E ratio of 20. Analysts also see more potential for Wyndham, with a consensus price target of $90 per share, 14% higher than the current stock price. Choice’s median price target is $123, which would represent a 3% downside from the current price.
Wyndham’s outlook for 2024 also looks good. RevPAR (revenue per available room) is expected to increase 2-3% in fiscal 2024, with overall revenue expected to increase 4-6%.
Choice could certainly regroup and refocus after this strategic setback, but at this point you can see why it would have wanted a merger more than Wyndham.
