Choice Hotels International proposed an exchange offer to Wyndham Hotels & Resorts’ shareholders to acquire the company. Wyndham released a response concerning the terms presented by Choice. Below is the information provided by both companies.
Choice’s Exchange Offer
NORTH BETHESDA, Maryland—Choice announced that it is commencing an exchange offer to acquire Wyndham to present its proposal directly to Wyndham shareholders. 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 benefits to franchisees, guests, and associates of both companies.
Patrick Pacious, president and CEO of Choice, said, “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. 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.”
“It remains our goal to reach a mutually agreeable transaction, and there is potential for additional value to be unlocked if Wyndham were to return to the negotiating table and provide due diligence. We look forward to meeting with Wyndham’s shareholders in the days and weeks ahead and to continuing the regulatory approval process we’re starting this week,” concluded Pacious.
Choice also announced that it currently holds approximately 1.5 million shares of Wyndham common stock, valued in excess of $110 million and is filing the Hart-Scott-Rodino (HSR) notification in order to begin the required regulatory review.
The exchange offer maintains the previously proposed offer to Wyndham, comprised of $49.50 in cash and 0.324 shares of Choice common stock per Wyndham share, representing a value of $40.50 based on Choice’s trading price as of Oct.16, 2023, the day before Choice’s first public offer (the Pre-Release Date). As of the Pre-Release Date, the proposed offer price equates to a 30 percent premium to Wyndham’s closing share price of $69.10 and reflects a 14.9x multiple of Wyndham’s consensus 2023 adjusted EBITDA estimate, absent COVID disruptions.
The exchange offer provides Wyndham shareholders the opportunity to elect to receive the consideration in all cash, all shares, or a combination of cash and shares, subject to a customary proration mechanism. In addition, the exchange offer features a regulatory ticking fee of $0.45 per Wyndham share per month, equivalent to $38 million per month, accruing daily after the first anniversary of the date a majority of Wyndham’s shares are tendered into the offer. This additional consideration, which has been included so that Wyndham shareholders can receive benefits similar to what Choice previously offered in its Nov. 14, 2023, proposal in the unlikely event the transaction were to take longer than 12 months to close, would be payable in cash or stock, at Choice’s election, upon Choice’s acceptance and exchange of the Wyndham shares tendered into the offer.
The exchange offer and withdrawal rights are scheduled to expire at 5:00 p.m., New York City time on Friday, March 8, 2024, unless the offer is extended or terminated. The exchange offer is subject to conditions, including the receipt of all required regulatory approvals. In the exchange offer, Choice is committing to take all actions required by regulators in connection with the approval of the transaction so long as such actions would not have a material adverse effect on the combined company. The full terms, conditions, and other details of the exchange offer are outlined in the offering documents that Choice is filing with the Securities and Exchange Commission.
Choice proposed privately to Wyndham on Nov.14, 2023, comprised of $49.50 in cash and 0.324 shares of Choice common stock per share of Wyndham stock and offered Wyndham two seats on the combined company’s board.
The Nov. 14, 2023 proposal included certain additional protections for Wyndham shareholders to provide certainty, as Wyndham publicly stated they desired, including:
- A reverse termination fee of $435 million, which represents approximately 6.0 percent of the total equity purchase price, payable in the event that the transaction did not close due to the failure to receive the required regulatory approvals;
- A regulatory ticking fee of 0.5 percent of the total equity purchase price per month, accruing daily after the first anniversary of the signing of definitive agreements;
- A mutual non-disclosure agreement to allow the parties to conduct confirmatory due diligence; and
- A commitment to taking all actions required by regulators in connection with the approval of the transaction so long as such actions would not have a material adverse effect on the combined company.
Wyndham publicly rejected the proposed terms on Nov. 21, 2023.
While not applicable to the exchange offer, in the context of a negotiated transaction, Choice is offering Wyndham shareholders a reverse termination fee that is consistent with the terms in its Nov. 14, 2023 proposal and two seats on the combined company’s board.
Wyndham’s Response
PARSIPPANY, New Jersey—Wyndham confirmed that Choice has commenced an unsolicited exchange offer to acquire all outstanding shares of Wyndham common stock. The offer proposed by Choice appears unchanged from the terms outlined in a letter to Wyndham dated Nov. 14, 2023, and is currently valued at approximately $86 per share.
Consistent with its fiduciary duties, and in consultation with its independent financial and legal advisors, the Wyndham Board of Directors will review and evaluate the offer to determine the course of action that it believes is in the best interests of Wyndham and its shareholders.
The offer looks to be unchanged from Choice’s previous offer the Board reviewed and rejected, which failed to address the concerns expressed by Wyndham, including:
- The asymmetrical risk to Wyndham shareholders given the uncertainty around antitrust approval and the estimated 24-month timeline previously cited by Choice;
- The undervaluation of Wyndham’s standalone growth prospects; and
- The value of Choice shares relative to its growth prospects and further compromised by the levels of leverage that this deal would require.
In addition to the 10 Wyndham shares they previously disclosed, Choice announced ownership of less than 1.7 percent of Wyndham common stock and conceded they are restricted from further purchases without antitrust approval.
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 on Schedule 14D-9. Wyndham shareholders are urged not to take any action with respect to the offer until the Board announces its recommendation.
Deutsche Bank Securities Inc. and PJT Partners are serving as financial advisors and Kirkland & Ellis LLP is legal advisor to Wyndham.
