In a surprising turn of events in the hospitality industry, Wyndham Hotels & Resorts Inc. has rejected a $9.8 billion takeover bid from Choice Hotels International Inc. This article delves into the details of the offer and Wyndham’s reasoning behind the rejection.
Wyndham’s Decision to Reject:
Wyndham dismissed Choice’s takeover offer as “underwhelming.” They cited concerns about heightened regulatory risks, potential franchisee turnover, and excessive leverage as key reasons for breaking off negotiations. Wyndham’s Chairman, Stephen Holmes, expressed skepticism about the deal’s long-term viability.
Choice’s Offer and Increasing Confidence:
Choice initially proposed to acquire Wyndham for $80 a share, later sweetening the deal to $90 a share with a cash component of 55%. Despite Wyndham’s concerns, Choice remained confident that franchisees and regulatory authorities would support the merger.
Antitrust Risks and Regulatory Landscape:
Regulators have been actively seeking to prevent deals deemed anticompetitive, signaling increased scrutiny under President Biden’s administration. Key figures, such as Lina Khan, have vowed to challenge companies that hinder fair competition. Recent events, like the lawsuit against Amazon and Microsoft’s lengthy battle for its acquisition of Activision Blizzard, highlight this trend.
Creating a Budget Hotel Behemoth:
The merger would combine two major players in the budget hotel segment, with Wyndham operating over 9,000 hotels under various brands and Choice boasting around 7,500 hotels spanning 22 different brands. Choice’s CEO, Patrick Pacious, believed the combination would significantly accelerate both companies’ long-term growth strategies.
Competitive Landscape and Cost Savings:
The economy hotel sector proved resilient during the pandemic, attracting the interest of industry giants like Marriott International and Hilton Worldwide. Merging Choice and Wyndham could strengthen their competitiveness against larger rivals while potentially yielding $150 million in cost savings and revenue growth.
Borrowing Costs and Timing Considerations:
This proposal comes at a time when borrowing costs are high, and the U.S. lodging industry’s recovery has slowed. To proceed with the acquisition, Choice would need to add an estimated $4.5 billion in additional debt issuance, posing financial challenges. Analysts wonder about the strategic and financial implications of the deal.
Conclusion:
In the face of the rejection, Choice Hotels will need to consider its next steps carefully. Wyndham’s concerns about regulatory risks, leverage, and franchisee turnover highlight the complexities surrounding major mergers in the current regulatory environment. The industry will be watching closely to see how this story unfolds.