Choice Hotels prepares to challenge Wyndham's board -sources

Choice Hotels International

27/11/2023 11:00

By Anirban Sen
       Nov 27 (Reuters) - Choice Hotels International  CHH.N 
is preparing to nominate directors to the board of rival Wyndham
Hotels & Resorts  WH.N , seeking to break a stalemate in an $8
billion takeover battle, people familiar with the matter said.
    Choice has become a Wyndham shareholder by snapping up its
shares in the open market and plans to raise its stake in the
coming days, the sources said.
    This gives Choice the right to nominate directors to
Wyndham's board come January. If Wyndham continues to rebuff
Choice's acquisition overtures, the latter could turn the
election of directors at Wyndham's annual shareholder meeting in
the spring into a referendum for investors on whether
negotiations should take place, the sources said.
    Choice has started to interview potential nominees for its
board slate, the sources added. It is also preparing to launch a
tender offer for Wyndham's shares that would show Wyndham's
investors that there is a firm offer on the table, according to
the sources.
    A tie-up between the two companies would combine two of the
biggest budget hotel operators in the United States.  
    Choice is making its preparations because Wyndham has
repeatedly rebuffed its offers and has refused to open its books
so the two sides can engage in mutual due diligence, the sources
said. It is possible that Choice will drop these plans if
Wyndham decides to negotiate a deal, the sources added,
requesting anonymity because the matter is confidential. 
    Wyndham has indicated it is willing to engage with Choice
and is open to signing a confidentially pact if all its concerns
about a potential deal are addressed, the sources said. 
        Parsippany, New Jersey-based Wyndham, which operates
brands such as Ramada, Super 8 and Microtel, argued last week
that Choice's latest revised bid continues to undervalue its
business. It said it was concerned about the slower growth
prospects of Choice's business and the high amount of debt the
combined company would be saddled with in a deal.
    Wyndham, which franchises about 9,100 hotels across more
than 95 countries, has cited antitrust scrutiny from U.S.
regulators as one of the reasons for rejecting Choice's
advances. 
        Choice, on the other hand, has projected that the
combined company would generate about $1 billion of free cash
flow in 2024, which would allow it to quickly pay down debt and
invest in growth. 
    Rockville, Maryland-based Choice operates nearly 7,500
hotels in 46 countries, including brands such as Radisson,
Country Inn & Suites, and Cambria Hotels.  
    Choice and Wyndham both declined to comment.
    Choice went public with a cash-and-stock offer of $90 per
share for Wyndham last month, after the latter privately
rebuffed its takeover attempts. Choice had first approached
Wyndham with an $80-per-share offer in April. 
        Wyndham, whose shares are currently hovering around $78,
does not view Choice's stock as an attractive currency and is
seeking an offer with a much higher cash component, the sources
said. Based on Choice's latest share price, its offer values
Wyndham at about $86 per share. 
  
    In a letter to Wyndham on Nov. 14, Choice Chief Executive
Pat Pacious outlined a two-year time frame to obtain the
necessary regulatory approvals and said the latest proposal
included a 6% breakup fee, as well as a so-called regulatory
"ticking fee" of 0.5% of the offer price. Choice has also argued
that hotel franchisees have complete autonomy to set their own
prices, so a combination between the two companies would not
result in higher prices for consumers. 
    Wyndham Chairman Stephen Holmes dismissed the letter as "a
step backwards." He said the two-year approval process would
leave his company in limbo, which the breakup fee cannot
compensate for. 

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Wyndham rejects Choice Hotels' $7.8 billion takeover bid   
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Wyndham board deems Choice Hotels' new offer 'a step backwards' 
   urn:newsml:reuters.com:*:nL4N3CM49A
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 (Reporting by Anirban Sen in New York; editing by Jonathan
Oatis)
 ((Anirban.Sen@thomsonreuters.com; Twitter: @asenjourno; Reuters
Messaging: Signal/Telegram/Whatsapp - +1-646-705-9409))