CHOICE HOTELS INTERNATIONAL is continuing its bid to acquire Wyndham Hotels & Resorts after twice being rejected by Wyndham’s board of directors. Now Choice has launched an exchange offer “to present its compelling proposal directly to Wyndham shareholders” and plans to nominate its own candidates for Wyndham’s board.
However, Wyndham’s board continues its refusal to accept the offer, saying it remains substantially the same as the last bid it rejected and does not address the board’s concerns about the deal’s regulatory viability and benefits to stockholders. It also said in a statement that Choice currently owns less than 1.7 percent of Wyndham common stock and is “restricted from further purchases without antitrust approval.”
Pressing its case
In its own statement released Tuesday, Choice said it had decided to its “compelling proposal” was too important for both companies to let go.
“Choice continues to believe that a transaction with Wyndham is pro-competitive and would generate value for both Wyndham and Choice shareholders as well as deliver significant benefits to franchisees, guests and associates of both companies,” the company said.
In its original proposal, made public in October, Choice said it sought to acquire all the outstanding shares of Wyndham at a price of $90 per share and shareholders would have received $49.50 in cash and 0.324 shares of Choice common stock for each Wyndham share they own. Choice claimed that is a 30 percent premium to Wyndham’s 30-day volume-weighted average closing price ending on Oct. 16, an 11 percent premium to Wyndham’s 52-week high, and a 30 percent premium to Wyndham’s latest closing price.
Wyndham’s board unanimously rejected Choice’s proposal, calling it unsolicited, “highly conditional” and not in the best interest of shareholders. On Nov. 14, however, Choice sent a letter to the Wyndham board with an “enhanced proposal” intended to address Wyndham’s concerns about clearing federal regulations.
Among the changes proposed are:
- Reverse termination fee of $435 million, or approximately 6 percent of the total equity purchase price.
- A regulatory ticking fee of 0.5 percent of the total equity purchase price per month, accruing daily after the one-year anniversary of the signing of definitive agreements.
- Choice agrees to take any actions required by antitrust regulators to close so long as such actions would not have a material adverse effect on the combined company, subject only to agreeing to an outside date 12 months post-signing of a definitive agreement, with two 6-month extensions exercisable by either party, if regulatory approvals have not been obtained by such date.
Despite Wyndham’s rejection of the second offer with its amendments, Choice is maintaining the reverse termination fee. It’s also willing to enter into a mutual non-disclosure agreement to conduct confirmatory due diligence.
"While we would have preferred to come to a negotiated agreement, the Wyndham board's refusal to explore a transaction has left us with no choice but to take our proposal directly to Wyndham's shareholders,” said Patrick Pacious, Choice’s president and CEO. “Wyndham chose to publicly reject our last proposal without any engagement even after we addressed their concerns, including adding significant regulatory protections for their shareholders."
Choice also announced that it currently holds approximately 1.5 million shares of Wyndham common stock, valued at more than $110 million. The company has filed forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with the U.S. Federal Trade Commission to begin the approval process, and it is taking another step aimed at changing Wyndham’s position on the merger.
“Choice is actively identifying, evaluating and interviewing highly qualified director candidates to nominate to Wyndham's board and has requested the directors' and officers' questionnaire from Wyndham in accordance with Wyndham's bylaws,” the company said. “Choice intends to nominate a slate of directors to the Wyndham board of directors at Wyndham's 2024 Annual Shareholder Meeting.”
The answer is still no
Wyndham’s board acknowledged Choice’s latest offer but it remains unmoved in its opposition to it.
“Consistent with its fiduciary duties, and in consultation with its independent financial and legal advisors, the Wyndham board of directors will carefully review and evaluate the offer to determine the course of action that it believes is in the best interests of Wyndham and its shareholders,” Wyndh am said. “However, the offer looks to be unchanged from Choice's previous highly conditional offer the board reviewed and rejected, which failed to address the serious concerns repeatedly expressed by Wyndham.”
Those concerns include:
- The asymmetrical risk to Wyndham shareholders given the uncertainty around antitrust approval (if any) and the estimated 24-month timeline previously cited by Choice.
- The undervaluation of Wyndham's standalone growth prospects.
- The value of Choice shares relative to its growth prospects and further compromised by elevated levels of leverage that this deal would require.
“The board intends to advise shareholders of its recommendation regarding the offer within 10 business days by making available to shareholders and filing with the U.S. Securities and Exchange Commission a recommendation statement,” Wyndham said. “Wyndham shareholders are urged not to take any action with respect to the offer until the board announces its recommendation.”
