Wyndham’s Board of Directors, together with its financial and legal advisors, closely reviewed Choice’s latest proposal with a nominal value of $90 per share, comprised of 45 percent in stock and 55 percent in cash and determined that it is not in the best interest of shareholders to accept the proposal.
Wyndham Hotels & Resorts is the largest hotel franchising company with approximately 9,100 hotels spanning more than 95 countries, and Choice Hotels International, Inc. wanted to acquire all outstanding shares of Wyndham.
In rejecting Choice’s proposal, the Wyndham Board of Directors determined that:
• the proposed transaction involves significant business and execution risks, including an extended regulatory timeline and uncertainty of outcome, potential franchisee churn, and excessive leverage levels at the pro forma combined company
• the consideration mix includes a significant component of Choice stock, which the Board believes is fully valued relative to Choice’s growth prospects, especially when compared to Wyndham
• the offer is opportunistic and undervalues Wyndham’s future growth potential
Wyndham’s Board believes that during the long period between announcement and closing or termination of the transaction, Wyndham shareholders would be exposed to the threat of significant long-term deterioration of Wyndham’s brand equity, franchisee churn, and impaired integration execution at the combined company in which Wyndham shareholders would have significant interest.
In addition, the significant amount of debt required to fund the cash portion of the deal would result in the combined company’s net leverage being over 6x adjusted EBITDA. This above-market leverage would increase execution risk and restrict the balance sheet flexibility of the combined company, putting downward pressure on future growth potential, share price and valuation multiples. As a result, the value creation from cost synergies may not be fully realized.
Wyndham’s Board also has significant questions and concerns about the value of Choice’s stock. Choice’s latest offer includes 45% in Choice stock, which Wyndham’s Board believes is fully valued. Industry experts unequivocally share the view of Choice being fully valued, with over three-quarters of research analysts having Choice at a Sell or Hold rating. Wyndham’s Board sees Choice’s offer as an attempt to mask their anemic organic growth and believes Wyndham shareholders are better positioned owning Wyndham’s stock, which has significant upside relative to Choice’s fully valued stock.
Choice’s offer is an opportunistic attempt to take advantage of point-in-time stock price fluctuations coinciding with a time period where the exchange ratio is favorable to Choice. Choice’s offer is insufficient relative to Wyndham’s recent trading levels, significant growth momentum and premiums paid in precedent change of control transactions. Wyndham’s Board believes Wyndham can deliver long-term shareholder value in excess of Choice’s offer by continuing to execute on its business plan.
