Choice Hotels nominates board directors in hostile Wyndham bid
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[January 22, 2024] By
Anirban Sen
NEW YORK (Reuters) -Choice Hotels International pressed ahead with its
$8 billion hostile bid for Wyndham Hotels & Resorts on Monday by
nominating a slate of directors to replace Wyndham's eight-member board.
It is Choice's latest attempt to break a stalemate after trying for most
of the last year to negotiate a deal with Wyndham, which has rebuffed
the bid as low-premium and fraught with antitrust risk. Wyndham has also
raised concerns about the combined company carrying too much debt and a
slowdown in Choice's business.
Choice said its slate of nominees includes hospitality industry veteran
Jay Shah, who currently serves on the board of private equity-backed HHM
Hotels; Susan Schnabel, founder of aPriori Capital Partners which
advises private equity on leveraged buyouts; James Nelson, CEO of real
estate investment trust Global Net Lease; and Fiona Dias, who served on
Choice's board from 2004 to 2012.
"The current Wyndham board continues to refuse to engage in meaningful
negotiations regarding a combination with Choice that would create
extraordinary value. By supporting these nominees and participating in
our exchange offer, Wyndham shareholders can send a clear message to the
Wyndham board," said Patrick Pacious, CEO of Choice.
Choice's board nominees also include Barbara Bennett, founder of
consulting firm Bennett West and a former Discovery Communications
executive; Emanuel Pearlman, who serves on several public-company boards
including Diebold Nixdorf, and Network-1 Technologies; Nana Mensah, who
serves on the board of Darden Restaurants which operates brands such as
Olive Garden and Longhorn Steakhouse; and William Grounds, a veteran of
the real estate and hospitality industries, who serves on the board of
PointsBet Holdings.
Wyndham declined to comment.
Reuters first reported about the slate of nominees earlier on Monday and
was also first to report on Nov. 27 that Choice was preparing to
nominate directors to the board of Wyndham. The move gives Wyndham
shareholders a way to push for the deal by turning the vote on board
directors in the spring into a referendum on whether the company should
open negotiations with Choice.
Choice also unveiled last month an exchange offer for Wyndham's stock,
appealing directly to its shareholders, after disclosing a stake worth
more than $110 million. While that offer cannot become effective - even
if a majority of Wyndham shareholders take it up - without the backing
of Wyndham's board, it is aimed at adding to pressure on Wyndham to
engage.
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The company logo for Choice Hotels is displayed on a screen on the
floor of the New York Stock Exchange (NYSE) in New York, U.S.,
February 17, 2017. REUTERS/Brendan McDermid/File Photo/File Photo
Rockville, Maryland-based Choice operates nearly 7,500 hotels in 46
countries in the upper-midscale and upscale segments, including
brands such as Radisson, Country Inn & Suites, and Cambria Hotels.
Parsippany, New Jersey-based Wyndham, which franchises about 9,100
hotels across more than 95 countries, operates brands such as
Travelodge, Ramada, Days Inn and Microtel.
Choice has said it has made four offers to Wyndham, with its latest
cash-and-stock bid currently worth about $87 per share. This
represents a 26% premium to Wyndham's closing share price on Oct.
16, the last trading day before Choice made its offer public.
Wyndham has said it can achieve a higher valuation on its own,
projecting compounded annual growth in adjusted earnings before
interest, taxes, depreciation and amortization of between 7% to 10%
through 2026. It has said that its adjusted EBITDA growth recently
reached 6%.
Wyndham has also argued that the combined company would have market
share of more than 55% market share in the economy and midscale
hotel sectors, triggering a potential 24-month review by antitrust
regulators that could result in the deal being shot down. It also
says that the potential deal has now attracted scrutiny from four
state attorneys generals and that some upset franchisees could flee
if there was a deal.
Choice has said it is confident it can secure antitrust clearance
for the deal, arguing that the two companies together account for
only 10% of U.S. room revenue, and has projected that the combined
company would generate about $1 billion of free cash flow in 2024,
allowing it to quickly pay down debt and invest in its business.
Choice has offered to pay Wyndham a break-up fee of $435 million
were regulators to shoot down the deal, as well as a ticking fee
payable to Wyndham for every day the deal has not been completed,
starting one year after the companies agree a merger. This ticking
fee would be worth $38 million per month.
"A deal makes a lot of sense for both Wyndham and Choice from a
franchisee perspective and an ownership standpoint. There are lots
of financial synergies in this deal - the franchisees are going to
get a significant amount of coordination between what can be done
with the increase in the revenue capabilities," said Mike Leven, who
co-founded the Asian American Hotel Owners Association (AAHOA).
(Reporting by Anirban Sen in New York; editing by Shri Navaratnam
and Jason Neely)
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