Choice Hotels’ hostile bid for Wyndham may result in a proxy battle, says Truist

Choice Hotels International Inc.’s hostile bid for Wyndham Hotels & Restaurants Inc. could result in a potential proxy battle, says Truist Securities.

On Tuesday Choice Hotels

launched a proposal to acquire Wyndham Hotels

for $90 per share. The bid is valued at approximately $7.8 billion on a fully diluted basis and approximately $9.8 billion, with the assumption of Wyndham’s net debt.

Choice had first proposed to acquire Wyndham for $80 per share earlier this year. When this was rejected, the hotel chain increased its proposal to $85 per share. In a statement released Tuesday, Choice said that the $90-per-share bid, which comprises 55% cash and 45% Choice stock, is the company’s “best and final offer.”

Related: Choice Hotels launches hostile bid to acquire Wyndham Hotels for $90 per share

Wyndham subsequently released a statement saying that its board of directors has unanimously rejected Choice’s proposal. “Choice’s offer is underwhelming, highly conditional, and subject to significant business, regulatory and execution risk. Choice has been unwilling or unable to address our concerns,” Stephen P. Holmes, chairman of the Wyndham board, said in the statement.

Holmes is experienced in mergers and acquisitions, according to Truist Securities analyst C. Patrick Scholes. “In our opinion, this is an attractive offer for WH shareholders, though we note WH’s Chairman (and former long-time CEO) is very well-versed in M&A and may be strategically holding out for a somewhat better offer from CHH or from someone else,” he wrote in a note released Tuesday. “Of any company that could acquire WH, we view CHH as the most natural candidate given a fairly similar portfolio makeup in the U.S.” Truist added that it is not aware of any company besides Choice that is interested in Wyndham.

In its statement Tuesday, Choice said it made its latest proposal public following Wyndham’s decision to disengage from further discussions with Choice, adding that this followed nearly six months of talks. 

Related: Choice Hotels affirms full-year profit outlook, as first-half hotel opening rose 39%

On a call with Truist Tuesday, Choice Hotels suggested they wanted “engagement” with Wyndham, according to Scholes. “Should WH decide to not reengage, we/Truist Securities anticipate a potential proxy battle,” he wrote. Truist maintained its hold rating for Choice.

Oppenheimer analyst Ian Zaffino also described the offer as attractive but said that Wyndham could hold out for a better price. “Specifically, the stock-for-stock ratio could be adjusted to account for the post-announcement decline in CHH shares and restore the $90 offer,” he wrote in a note Tuesday. “WH could also ask for a large break-up fee to account for any distractions or franchisee churn that could happen during the regulatory/approval/closing process.” Oppenheimer has an outperform rating for Wyndham.

Last year Choice acquired Radisson Hotel Group Americas in a deal valued at about $675 million.

Related: Choice Hotels to acquire Radisson Hotel Group Americas in deal valued at about $675 million

Choice’s stock was unchanged in premarket trades Wednesday after ending Tuesday’s session down 6.8%. Wyndham shares were down 1.8% premarket after ending Tuesday’s session up 9%.

Choice shares have risen 3.3% in 2023, while Wyndham shares have gained 5.6%, compared with the S&P 500 index’s 
13.9% gain.

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