Wyndham franchisees question possible Choice merger, association says

Choice Hotels International

14/12/2023 18:05

By Doyinsola Oladipo
       NEW YORK, Dec 14 (Reuters) - A major U.S. hotel owners
association said its Wyndham Hotels & Resorts  WH.N  franchisee
members are worried an acquisition by budget operator Choice
Hotels International  CHH.N  could hurt their business.
    Choice on Tuesday launched a hostile bid for Wyndham to
bring Wyndham to the negotiating table. The deal, initially
valued at $7.8 billion, would combine two of the biggest U.S.
budget operators at a time when demand for cheaper extended stay
brands is growing rapidly.
    Wyndham owners have several worries, said Laura Lee Blake,
chief executive of the Asian American Hotel Owners Association
(AAHOA) which represents nearly 20,000 members who own about 60%
of the hotels in the United States. 
    The AAHOA surveyed 1,000 of its members to gauge sentiment
on the potential merger. About 80% of Wyndham franchisee
respondents said a tie-up would hurt their business and about
60% said they would terminate their contract in the event of a
merger if they had the option. 
    Wyndham did not respond to a request for comment.
    Blake said many AAHOA members saw revenue fall after
previous mergers, including the 2018 combination of Wyndham and
La Quinta and Choice's acquisition of Radisson Hotels Americas
in 2022. Members are also worried about increased fees and brand
dilution, she said.
    "When you sign a 20-year franchise agreement, you are
anticipating that you're going to be with this brand for the
next 20 years and if you're unhappy with the brand or a merger
like this occurs, you cannot just change your mind," Blake said.
       
    A combined company would have 16,500 hotels across 46
brands, many operating economy hotels within the limited service
segment, she said.
    Historically, about 5% of franchisee owners leave a brand
after a merger or acquisition, said Patrick Scholes, Truist
equity analyst. The survey is "probably reflective of Wyndham's
management being really aggressive to get the word out there
that they don't see it as a good deal."
    Choice said the merger will reduce costs and boost revenues
for franchisees. It said it plans to address franchisee concerns
including decreasing reliance on online travel agencies for
bookings and lowering operating costs.
    "Our discussions with a number of our franchisee advisory
councils have shown that franchisees are eager for the upside
the combination would bring," said a Choice spokesperson. 
    Roughly 70 million to 80 million Americans are economy
travelers. Recently, giants Hilton and Marriott have introduced
economy offerings. 
    Eight of the first 20 Hilton economy hotels, named Spark,
converted from a Choice brand, said Richard Clarke, Bernstein
equity analyst. That may be adding pressure to Choice to make a
deal, he said.

 (Reporting by Doyinsola Oladipo in New York; Editing by Josie
Kao)
 ((Doyinsola.Oladipo@thomsonreuters.com; +18623846440; https://www.linkedin.com/in/doyinsolaoladipo/;))