Choice's pursuit of Wyndham a rare hostile bid in hospitality

What started as closed-door negotiations between two major hotel companies about a potential acquisition has evolved into a very public, hostile standoff, with Wyndham Hotels & Resorts labeling the unsolicited bid from Choice Hotels International to acquire Wyndham as “desperate.” 

The drama began earlier this spring when Choice first approached Wyndham about a potential takeover. Choice went public with its proposal to acquire Wyndham for roughly $8 billion in mid-October, saying that Wyndham had decided to “disengage” from the negotiations, even though its offer had climbed from $80 per share in April to the current $90 per share. 

“While we would have preferred to continue discussions with Wyndham in private, following their unwillingness to proceed, we feel there is too much value for both companies’ franchisees, shareholders, associates and guests to not continue pursuing this transaction,” Choice Hotels CEO Patrick Pacious said in a statement at the time.

Wyndham promptly rejected the offer. 

During Wyndham’s third-quarter earnings call in late October, executives gave their reasoning for turning down the deal. Company chairman Stephen Holmes said that Choice has lagged in terms of organic growth, has a “less vibrant” loyalty program and has “virtually no international capabilities,” among other “serious issues within their organization.” 

Wyndham CEO Geoff Ballotti also chimed in, alleging that Choice has a “declining pipeline.”

Choice, meanwhile, followed up by sending a memo to its own franchisees, reiterating that the sheer scale of a merged company would lower costs and increase direct revenue, while highlighting that Choice has tripled its rewards program members and increased direct bookings to its hotels by 50% over the past decade. 

Undeterred, Choice also released a statement calling upon Wyndham to “engage in good faith discussions.”

According to Robert Cole, Phocuswright’s senior research analyst for lodging and leisure travel, this type of heated back-and-forth is unusual within the hospitality sphere.

“The hospitality industry doesn’t have a lot of hostile takeovers,” said Cole. “And it’s also interesting because Wyndham is kind of the bigger player here, so it’s a little bit of a bold move by Choice.”

While Choice may have to sweeten the deal, Cole added that the current offer “appears to be fair,” but with both companies having significant overlap in the economy and limited-service sectors, antitrust concerns are a factor. 

Choice’s brands include Comfort, Radisson, Sleep Inn, Quality Inn, Clarion, Rodeway Inn and Econo Lodge, while Wyndham has Days Inn, Super 8, Travelodge, Ramada, La Quinta, Wyndham and Wyndham Garden.

“It basically all comes down to whether Choice comes up with an offer that’s acceptable to the Wyndham shareholders, as well as the Federal Trade Commission looking at how much consolidation within the lower end of the hotel chain scale is excessive consolidation,” Cole said.

One group voicing antitrust concerns is the Asian American Hotel Owners Association (AAHOA), which put out an October statement opposing Choice’s proposed takeover of Wyndham. 

The AAHOA said that a combined company, spanning a collective 46 brands, would “dominate the economy/limited-service segment.”

The AAHOA’s membership base comprises approximately 20,000 hotel owners, who collectively own around 60% of the hotels in the U.S.

“As the owners of more than two-thirds of both Choice Hotels and Wyndham-branded hotels, AAHOA members have much at stake,” AAHOA chairman Bharat Patel said. “To have one franchisor, Choice Hotels, control so many economy and limited-service hotels [would] give our members little opportunity to have a say in whether the franchise mandates and requirements are fair and significantly limit their options to find a different brand under which they could successfully operate their hotels.”

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