The rejection comes after a comprehensive review with outside financial and legal advisers, who determined that the offer is not in the best interests of Wyndham and its shareholders.
The board strongly advises shareholders not to tender any of their shares into the offer.
Major concerns highlighted by Wyndham’s board
The Wyndham’s board outlined several key reasons behind their unanimous decision to reject Choice Hotels’ offer:
- Regulatory risks and uncertain outcome: The board expresses concern over the uncertain regulatory timeline and outcome associated with the offer, emphasising the potential for a prolonged review period of up to 24 months and the inadequate protections and compensation for asymmetrical risks faced by Wyndham shareholders.
- Antitrust risks and business disruption: The merger with Choice Hotels would create the largest US provider of hotel franchise services in the economy and midscale segments, raising significant antitrust concerns. The Wyndham’s board is wary of a potentially extended review period, leading to disruptions in new business development, increased employee turnover and potential harm to the fast-growing ECHO Suites brand.
- Inadequate valuation and growth potential: Wyndham’s board believes that Choice’s offer undervalues Wyndham’s superior, standalone growth prospects. They highlight the company’s ongoing retention strategy, a record pipeline and geographic positioning to benefit from the federal government’s Infrastructure Bill. Additionally, the board argues that Choice mischaracterises Wyndham’s growth potential, offering a premium of only 4% to Wyndham’s 52-week high and a 10% premium to its current stock price.
Choice Hotels’ offer and financial concerns
Choice Hotels’ proposal, according to Wyndham’s board, raises significant financial and business concerns:
- Stock price volatility: The 45% stock component of Choice’s offer is deemed volatile, exposing Wyndham shareholders to excessive risks. Choice’s stock has already dropped by 12% since its initial public offer, and 70% of covering research analysts rate it as a “sell” or “hold” stock.
- Uncommitted financing and litany of conditions: Wyndham’s board raises doubts about the offer’s certainty, noting that Choice has not secured committed financing despite four months of purported calls with potential sources. They also point out the non-customary “diligence condition” in the offer, which they believe favours Choice as a one-way exit option.
Wyndham’s board therefore strongly recommends that shareholders reject Choice Hotels’ offer, emphasising its commitment to acting in the best interests of all Wyndham’s shareholders.
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