Wyndham Hotels & Resorts has firmly declined the recent offer from Choice Hotels International, deeming it a “step backwards” in their ongoing discussions about a potential merger.
Choice Hotels sent a letter outlining the terms of the proposed merger on November 14, marking their first communication since the unsolicited proposal. In response, Wyndham officials, backed by financial and legal advisors, expressed dissatisfaction with the outlined parameters, stating they are not in the best interests of the company and its shareholders.
Wyndham Chairman Stephen P. Holmes emphasized concerns about the lack of change in the proposed consideration, which, at Choice’s current share price, values Wyndham at $86 per share, below the nominal value of $90 per share proposed on October 17.
Holmes highlighted issues with Choice’s proposed two-year period to seek regulatory approvals, coupled with a low six percent reverse termination fee. He stated, “Choice continues to ignore our major concerns around value, consideration mix, and asymmetrical risk to our shareholders given the uncertainty around regulatory timeline and outcome.”
In response to Choice’s letter, Wyndham conveyed its rejection in a letter dated November 21. Holmes stated, “This letter does not, and in fact represents a step backwards despite being delivered nearly a full month after you decided to unilaterally go public with your unsolicited proposal.”
The letter iterated Wyndham’s three primary concerns: undervaluation of standalone growth prospects, the value of Choice shares relative to its growth prospects, and the uncertain regulatory timeline and resulting asymmetrical risk to shareholders. It criticized Choice’s failure to adequately address these concerns and reaffirmed that the proposed terms are not in the best interest of Wyndham or its shareholders.
The letter also challenged Choice’s proposed timeline for seeking regulatory approvals, emphasizing the potential damage and disruption to Wyndham’s business during this extended period. The board expressed puzzlement at Choice’s unwillingness to agree to a robust reverse termination fee that adequately protects Wyndham in case the deal falls through after a prolonged regulatory review.
The rejection letter concluded by stating that Wyndham’s board remains faithful fiduciaries and is ready to engage in discussions if Choice presents a proposal that adequately addresses their concerns. The public response was deemed necessary to avoid continued uncertainty that could benefit Choice competitively.