Budget hotel operator Choice Hotels International launched a hostile bid for peer Wyndham Hotels & Resorts and prepared for a board battle to bring the target to the negotiating table.
Choice went public with its cash-and-stock offer for Wyndham in October, then valued at about $8 billion, in an attempt to combine two of the biggest U.S. budget hotel operators. The offer is now worth about $7.2 billion, tracking a decline in Choice’s stock.
“There is potential for additional value to be unlocked if Wyndham were to return to the negotiating table and provide due diligence,” Choice Hotels CEO Patrick Pacious said in a statement.
Wyndham on Tuesday said its board would evaluate the offer even as it reiterated that the offer undervalues its business and carries regulatory risks. It has also highlighted a combined company’s likely high debt level, as well as the slower growth prospects of Choice’s business.
“Choice taking this next step (largely as expected) sends an incrementally stronger message, but doesn’t materially alter the likelihood of a transaction,” Barclays analyst Brandt Montour wrote in a note.
Wyndham’s shares were up 1.2% at $80.13 in morning trade as Choice announced ownership of less than 1.7% of Wyndham stock. Reuters in November reported that Choice was preparing to challenge Wyndham’s board.
The bid comes when domestic travel is under pressure from sticky inflation, likely fueling demand for budget hotels from travelers looking for cheaper options.
Wyndham shareholders are entitled to a $38 million per month regulatory ticking fee if the deal is not completed after one year of the signing of definitive agreements, Choice said.
The exchange offer and withdrawal rights will expire at 5:00 p.m. ET on March 8, 2024, unless extended or terminated.
Choice was identifying director candidates for nomination to Wyndham’s board at its 2024 annual meeting and would file documents with the Federal Trade Commission to kick off a regulatory review process.
