Choice Hotels International, Inc. (NYSE: CHH) (the “Company” or “Choice”), today called upon the board of directors of Wyndham Hotels & Resorts, Inc. (NYSE: WH) (“Wyndham”) to engage in good faith discussions so that shareholders of both companies can benefit from the compelling combination.
Patrick Pacious, President and Chief Executive Officer of Choice, said, “We appreciate the positive feedback we have received since first making our proposal public, particularly the support from both companies’ shareholders and franchisees. Through our conversations with these stakeholders, we are encouraged by their clear understanding of the natural fit of the two businesses and belief in the combined company’s ability to drive greater shareholder returns, franchisee profitability, and strategic benefits. They, and others, share our perspective that a transaction is pro-competitive, has a clear path to completion, and creates a combined company with a strong free cash flow profile to support both rapid deleveraging and investments for growth.”
Mr. Pacious continued, “We respect Wyndham’s desire to achieve the best outcome for its shareholders, but that can’t happen if Wyndham unilaterally ends our discussions. Both companies’ shareholders have expressed to us their understanding of the tremendous value this combination could deliver. As recently as a few weeks ago, Wyndham prepared a critical information request list, on which both parties broadly aligned, to help Choice and Wyndham close any remaining value gaps. Wyndham then disengaged before any information was exchanged. We therefore strongly urge Wyndham to return to the discussions. Choice is ready to move expeditiously to negotiate binding terms, including mechanisms to provide market standard protections for Wyndham shareholders.”
Choice Management’s Track Record of Value Creation
The compelling proposal of $90.00 per share represents a 14.9x multiple of Wyndham’s consensus 2023 EBITDA estimates, a forward multiple that Wyndham has never achieved absent COVID disruptions. Furthermore, the consideration mix would allow Wyndham shareholders to both realize immediate value creation and share in the significant upside potential of the combined company. The $150 million synergy opportunity alone is expected to translate into more than $2 billion in shareholder value creation.
The Choice management team has a strong history of shareholder value creation through organic growth and acquisitions. Since 2017, the Choice management team has delivered market-leading revenue and Adjusted EBITDA growth CAGR of approximately 10% and successfully integrated the Radisson and WoodSpring Suites acquisitions. Additionally, the Choice management team has driven strong stock price performance compared to Wyndham’s performance since its spin-off in 2018, generating three times the value for its shareholders. Choice’s stock has historically traded at a higher multiple of approximately three turns compared to Wyndham, which would allow Wyndham shareholders to participate in incremental value creation following the completion of the transaction. From 2019 to 2022, Choice’s unique strategy generated Adjusted EBITDA growth of 28% compared to Wyndham’s 6%.
Choice believes its existing offer rewards Wyndham shareholders well in excess of the present value that could be achieved through a rational Wyndham standalone plan.
Transaction is Pro-Competitive and has a Clear Path to Completion
The combined company would enhance competition against larger industry participants with strong balance sheets and an established market presence across multiple segments. Many of these competitors have launched brands focused on the Economy and Midscale segments and are actively marketing to hotel owners in those segments. Large, branded alternatives for hotel owners and guests are already present across the Economy and Midscale segments, including Best Western, Extended Stay America, G6 (Motel 6), Oyo, Red Roof Inn, and Sonesta, which would continue to provide multiple options to both current franchisees or hotel owners considering adopting a brand. Many hotel owners choose to be independent and in fact, independent hotels comprise nearly two-thirds of the Economy segment and close to 40% of the Midscale segment.
Significantly, unlike businesses with centralized pricing, all Choice and Wyndham hotel franchisees have complete autonomy to set their own prices. This consumer-friendly, pro-competitive structure would continue following transaction close. Franchisees, most of whom are small business entrepreneurs, are expected to receive significant benefits from the expanded system size and synergies that a Choice-Wyndham combination would provide. The proposed transaction is expected to lower franchisee costs by increasing direct bookings and create a rewards program on par with the top two global hotel rewards programs. Reducing reliance on third-party distribution channels and increasing rewards member guests has been a proven formula for improving hotel profitability. For these reasons, we were not surprised that many of our and Wyndham’s franchisees have expressed their support for the proposed transaction.
Strong Pro Forma Financial Profile of Combined Company
The proposed transaction combines two complementary hotel franchising companies, accelerating opportunities for sustained long-term growth. The combined company’s asset-light franchising model generates durable and predictable free cash flow that provides financial strength and stability for stakeholders. The combined company’s significant Adjusted EBITDA margin expansion and high free cash flow is expected to support pro-competitive growth investments. On a pro forma synergized basis, the combined company is expected to generate pro forma free cash flow of approximately $1 billion in 2024, which would enable the combined company to rapidly reduce leverage while investing for growth.