Represents 26% Premium to 30-Day VWAP ending
on October 16, 2023, 11% Premium to
52-Week High, and 30% Premium to Latest Closing Price
Significantly Enhances the Return on
Investment for Choice and Wyndham Franchisees
Provides a Compelling Range of Lodging Options
and Price Points Well-Positioned to Serve Evolving Needs of the
Value-Driven Traveler
Annual Run-Rate Synergies of Approximately
$150 Million Anticipated While
Accelerating Opportunities for Sustained Long-Term Growth
ROCKVILLE, Md., Oct. 17,
2023 /PRNewswire/ -- Choice Hotels International,
Inc. (NYSE: CHH) (the "Company" or "Choice"), today announced a
proposal to acquire all the outstanding shares of Wyndham Hotels
& Resorts, Inc. (NYSE: WH) ("Wyndham") at a price of
$90.00 per share, payable in a mix of
cash and stock.
Under Choice's proposal, the $90.00 per share to be received by Wyndham
shareholders would consist of $49.50
in cash and 0.324 shares of Choice common stock for each Wyndham
share they own. Choice's proposal represents a 26% premium to
Wyndham's 30-day volume-weighted average closing price ending on
October 16, 2023, an 11% premium to
Wyndham's 52-week high, and a 30% premium to Wyndham's latest
closing price. In addition, Choice's proposal includes a cash or
stock election mechanism, which would provide Wyndham shareholders
with the ability to choose either cash, stock, or a combination of
cash and stock consideration, subject to a customary proration
mechanism. The proposal implies a total equity value for Wyndham of
approximately $7.8 billion on a fully
diluted basis. With the assumption of Wyndham's net debt, the
proposed transaction is valued at approximately $9.8 billion.
Choice is making its latest proposal public following Wyndham's
decision to disengage from further discussions with Choice,
following nearly six months of dialogue.
Patrick Pacious, President and
Chief Executive Officer of Choice Hotels, said, "We have long
respected Wyndham's business and are confident that this
combination would significantly accelerate both Choice's and
Wyndham's long-term organic growth strategy for the benefit of all
stakeholders. For franchisees, the transaction would bring Choice's
proven franchisee success system to a broader set of owners,
enabling them to benefit from Choice's world-class reservation
platform and proprietary technology to drive cost savings and
greater investment returns. Additionally, the value-driven leisure
and business traveler would benefit from the combined company's
rewards program, which would be on par with the top two global
hotel rewards programs, enabling them to receive greater value and
access to a broader selection of options across stay occasions and
price points."
"A few weeks ago, Choice and Wyndham were in a negotiable range
on price and consideration, and both parties have a shared
recognition of the value opportunity this potential transaction
represents. We were therefore surprised and disappointed that
Wyndham decided to disengage. 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. Importantly, we remain
convinced of both the many benefits of the combination and our
ability to complete it," concluded Pacious.
STAKEHOLDER BENEFITS
The proposed transaction is expected to provide important
benefits for both companies' stakeholders – franchisees,
shareholders, associates, and guests – that will be particularly
significant in the current uncertain economic
climate:
- Franchisees Win with Lower Total Cost of Ownership and
Increased Hotel Profitability.
- Capitalizes on Choice's proven franchisee success system,
dedicated to driving incremental topline reservation delivery to
hotel owners' properties, while lowering the total cost of hotel
operations.
- Nearly doubles the resources available to spend on marketing
and driving direct bookings to franchisees' hotels, lowering the
cost of customer acquisition.
- Establishes an even larger rewards member base on par with the
top two global programs in hospitality.
- Drives more business to franchisees through lower cost direct
booking channels, lower customer acquisition commissions and fees,
and lower hotel operating costs and technology-driven labor
efficiencies, while continuing to determine their own commercial
and pricing strategy.
- Improves the value of franchisees' real estate assets by
enhancing applicable cap rates and cash flows resulting from
affiliation with the proforma company.
- Reduces friction by offering guests a broad portfolio of brands
across segments, no matter their stay occasions, within a single
system.
- Promotes increased investment and innovation in proprietary
technology systems, processes, and training at the hotel and
corporate level, which drives returns for Choice franchisees.
- Creates an opportunity to replicate the tremendous success of
Choice's recent acquisition of Radisson Hotel Group Americas.
During the integration of the nearly 600 Radisson Americas hotels
into the Choice platform, Radisson's franchisees have already
meaningfully benefited from increased guest traffic to direct and
digital channels, improvement in conversion rates, and access to
more corporate accounts, among other benefits.
- Shareholders Win with Superior Value Creation.
- Represents a 26% premium to Wyndham's 30-day volume-weighted
average closing price ending on October 16,
2023, an 11% premium to the 52-week high, and a 30% premium
to the latest closing price.
- Anticipates meaningful annual run-rate synergies, estimated at
approximately $150 million, through
the rationalization of operational redundancies, duplicate public
company costs, and topline growth potential.
- Enables Wyndham shareholders to benefit from Choice's
historically 3x higher EBITDA multiple on a go-forward basis and
receive deferred tax treatment on their stock consideration.
- Creates additional capacity to further support Choice's revenue
intense strategy, ultimately helping drive growth across its
organic revenue levers.
- Generates predictable high free cash flow through an
asset-light, fee-for-service model, providing resiliency through
all economic cycles and enabling additional investments for future
growth.
- Offers Wyndham two seats on the combined company's board and
Wyndham shareholders the opportunity to participate in the
significant upside potential of the combined company.
- Cash/stock consideration mechanism enables Wyndham shareholders
to choose between immediate upfront proceeds or long-term value
creation, subject to a customary proration mechanism.
- Guests Win with More Lodging Options and Value.
- Creates a combined rewards program on par with the top two
global programs in hospitality and will offer best-in-class program
benefits through partnerships and compelling hotel redemption
options.
- Builds a global network of brands and hotels that meets the
needs of the value-driven traveler across geographies, stay
occasions and price points, supported by a seamless reservation
system that provides guests with a more effective and efficient
booking and shopping experience.
- Improves data analytics, enabling the combined company to
personalize communications and tailor recommendations to best meet
the needs of the up to 160 million combined rewards program
members.
- Associates Win with Expanded Opportunities and Increased
Stability.
- Offers the ability to retain and attract "best-in-class" talent
to one of the world's premier hotel companies focused on employee
well-being, bringing together a wide range of experience and deep
industry expertise.
- Provides more opportunities for advancement and career growth
as part of a larger, more diversified organization.
- Combines two performance-driven cultures with a continued
emphasis on associate development and growth.
RECENT ENGAGEMENT OVERTURES
Choice has been engaging with Wyndham for nearly six months.
In April 2023, Choice sent its initial letter to Wyndham
regarding a potential transaction, proposing to acquire Wyndham for
$80.00 per share, comprising 40% cash
and 60% Choice stock. The proposal represented a 20% premium to the
closing price of Wyndham common stock on April 27, 2023, and a 19% premium over Wyndham's
30-day volume-weighted average share price as of such date. Wyndham
rejected the proposal and refused to engage in further
discussions.
In the days and weeks thereafter, Choice continued to attempt
engagement with Wyndham, increasing its proposal to $85.00 per share, comprising 55% cash and 45%
Choice stock, explaining that further discussions could clarify
Wyndham's hesitation to proceed with negotiations. The companies'
respective Board Chairs and CEOs then met in person, and following
that meeting, Choice improved its proposal yet again. Choice made
its best and final offer which represented an increase of the
per-share consideration to $90.00,
comprising 55% cash and 45% Choice stock.
In September 2023, the Choice and
Wyndham Board Chairs continued engagement, along with each of their
respective financial and legal advisors. Wyndham acknowledged the
strategic rationale of the proposal and that terms were within a
negotiable range but raised questions regarding the value of Choice
stock and timing for obtaining regulatory approvals. In response,
Choice proposed to enter into a one-way, short-term non-disclosure
agreement to facilitate Choice providing information that would
address Wyndham's concerns (a draft of which was subsequently sent
to Wyndham) and made its external counsel available for several
discussions. However, during a follow-up call between the Chair of
each company's Board and their respective advisors, Wyndham made
clear their unwillingness to proceed with further discussions.
The full text of each letter that Choice has sent to Wyndham, as
well as additional materials regarding Choice's proposal, is
available at CreateValueWithChoice.com.
FINANCING, CONDITIONS AND APPROVALS
Closing of the contemplated transaction would be subject to
satisfaction of customary closing conditions, including receipt of
required shareholder and regulatory approvals. Choice would not
make this offer if it were not confident that its franchisees and
guests would embrace the proposed combination and that the
transaction would receive applicable regulatory approvals in due
course.
The cash portion of the purchase price is expected to be funded
with a combination of cash on hand, as well as proceeds from the
issuance of debt securities. Choice is highly confident in its
ability to obtain fully committed financing based on indications
from two separate bulge bracket global banks for the entire cash
portion of our proposal. Strong free cash flows will allow for
continued investments in the proforma business and rapid
deleveraging of the balance sheet.
RECENT LETTER TO WYNDHAM BOARD
Below is the most recent letter sent to Wyndham's Board of
Directors:
August 21,
2023
Via Electronic Mail
Board of Directors
Wyndham Hotels & Resorts, Inc.
c/o Stephen P. Holmes, Chairman of
the Board
22 Sylvan Way
Parsippany, NJ, 07054
Dear Directors:
On behalf of Choice Hotels International, Inc.
("Choice" or "we"), I am writing this letter to reiterate our
strong interest in pursuing a business combination (the
"Transaction") with Wyndham Hotels & Resorts, Inc. ("Wyndham"
or "you"). This fourth letter takes into consideration the feedback
we received from you following our conversations and our last
letter, dated May 31, 2023, and
materially increases our offer.
We are now offering to acquire 100% of the fully
diluted equity of Wyndham for $90.00
per share, a $5.00 per share increase
from our offer on May 15, 2023 of
$85.00 per share, and a $10.00 per share increase from our initial
proposal on April 28, 2023. The
aggregate Transaction consideration would be comprised of 55% cash
and 45% shares of Choice stock. In addition, we propose to include
a cash or stock election mechanism, which would provide your
shareholders with the ability to choose either cash, stock or a
combination of cash and stock consideration, allowing them to
choose between realizing a substantial immediate cash premium or
benefiting from the opportunity to participate in the material
value creation of the combined platform, that we detail hereafter.
Non-electing shareholders would receive all stock, and there would
be a pro-ration mechanism should either cash or stock consideration
be oversubscribed. Additionally, we are highly confident in our
ability to obtain fully committed financing based on indications
from two separate bulge bracket global banks for the entire cash
portion of our proposal, removing any financing risk from our
proposed transaction.
The proposed consideration of $90.00 per share represents a compelling
valuation for your shareholders. It reflects a 37% premium to your
unaffected stock price as of the May 22,
2023, the day before the WSJ article disclosing a possible
transaction, an 11% premium to your 52-week high and a 24% premium
to your most recent closing price on August
21, 2023. The implied valuation also reflects a 14.9x
multiple of your consensus 2023 EBITDA estimates, a forward
multiple that Wyndham has never achieved absent COVID disruptions,
and comes at the high end of your equity research analyst price
targets.
Our proposal to acquire Wyndham at a premium
valuation reflects our conviction that a combined company will
deliver significant value to shareholders - value creation,
including over $100 million of target
cost synergies, in which your shareholders will have the
opportunity to participate. As 35% owners of the proforma company,
Wyndham legacy shareholders stand to benefit from over $500 million of value creation1 from
the realization of cost synergies, in addition to the compelling
premium offered and participation in the multiple expansion of the
Wyndham business. We believe our track record of success has been
and will continue to be recognized by the equity markets, as
evidenced by our stock price. Additionally, we recently reaffirmed
our commitment to growth in our press release dated July 11, 2023 and Q2 earnings release, in which
we indicated our expectation to grow Choice EBITDA by 10% in 2024.
We are committed to growing the combined business for the benefit
of the combined company's shareholders, customers, employees and
franchisees. In addition, we continue to propose that two mutually
acceptable independent members of the Wyndham board of directors
join the Choice board upon the closing of the Transaction.
As previously stated, we would not
require a financing contingency in connection with the
Transaction. We believe our proposal will result in a combined
company that has the financial flexibility to continue to invest in
long-term growth initiatives to drive significant value creation
for its shareholders and other constituents and will be well
positioned to weather any unforeseen macro-economic challenges.
Additionally, we do not anticipate this Transaction to have a
significant impact on the combined company's credit rating and that
any rating action will be short-term given our ability to
efficiently repay debt due to our high margin, high free cash flow
generating business plan and would result in a rating that is equal
to or better than Wyndham's existing credit rating.
We are prepared to move expeditiously through
any remaining due diligence, and we are confident we could execute
definitive documents for the Transaction within 20 days of your
agreement to engage with us on the basis of the terms of this
letter. We anticipate requiring only limited time of your
management to confirm our key assumptions around our business plan
and potential synergies.
As you know, and as we have stated multiple
times in the past, we respect what you, your management team and
your board have accomplished. We have made extraordinary efforts to
initiate a direct dialogue with you regarding the key economic
terms of a Transaction, and while we recognize the interactions to
date, we view them as limited, cursory and dismissive. We are
perplexed by your obvious resistance to a frank and open commercial
dialogue in light of the compelling value we are offering your
shareholders, including the opportunity to participate in the
future value creation of the combined company. This enhanced
proposal, which is based on public information, represents our best
and final offer. We believe the substantial and improved value it
provides, with additional flexibility via the election mechanism,
would be incredibly attractive to your shareholders.
We urge you to accept our offer and engage with
us and our advisors openly and without delay so that we can advance
a dialogue for the mutual benefit of our respective
shareholders.
Best regards,
Patrick Pacious
ADVISORS
Moelis & Company LLC and Wells Fargo are serving as
financial advisors to Choice and Willkie
Farr & Gallagher LLP is serving as legal advisor.
About Choice Hotels®
Choice Hotels International, Inc. (NYSE: CHH) is one
of the leading lodging franchisors in the world. Choice® has nearly
7,500 hotels, representing almost 630,000 rooms, in 46 countries
and territories. A diverse portfolio of 22 brands that range from
full-service upper upscale properties to midscale, extended stay
and economy enables Choice® to meet travelers' needs in more places
and for more occasions while driving more value for franchise
owners and shareholders. The award-winning Choice Privileges®
loyalty program and co-brand credit card options provide members
with a fast and easy way to earn reward nights and personalized
perks. For more information, visit www.Choicehotels.com.
Forward-looking Statements
Information set forth herein includes "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Certain, but not necessarily all, of such
forward-looking statements can be identified by the use of
forward-looking terminology, such as "expect," "estimate,"
"believe," "anticipate," "should," "will," "forecast," "plan,"
"project," "assume," or similar words of futurity. All statements
other than historical facts are forward-looking statements. These
forward-looking statements are based on management's current
beliefs, assumptions and expectations regarding future events,
which, in turn, are based on information currently available to
management. Such statements include, but are not limited to, the
ultimate outcome of any possible transaction between Choice and
Wyndham (including the possibility that the parties will not agree
to pursue a business combination transaction or that the terms of
any definitive agreement will be materially different from those
described herein); uncertainties as to whether Wyndham will
cooperate with Choice regarding the proposed transaction; Choice's
ability to consummate the proposed transaction with Wyndham; the
conditions to the completion of the proposed transaction, including
the receipt of any required shareholder approvals and any required
regulatory approvals; Choice's ability to finance the proposed
transaction with Wyndham; Choice's indebtedness, including the
substantial indebtedness Choice expects to incur in connection with
the proposed transaction with Wyndham and the need to generate
sufficient cash flows to service and repay such debt; the
possibility that Choice may be unable to achieve expected synergies
and operating efficiencies within the expected timeframes or at all
and to successfully integrate Wyndham's operations with those of
Choice, including the Choice loyalty program; the possibility that
Choice may be unable to achieve the benefits of the proposed
transaction for its franchisees, associates, investors and guests
within the expected timeframes or at all, including that such
integration may be more difficult, time-consuming or costly than
expected; that operating costs and business disruption (without
limitation, difficulties in maintaining relationships with
associates, guests or franchisees) may be greater than expected
following the proposed transaction or the public announcement of
the proposed transaction; and that the retention of certain key
employees may be difficult. Such statements may relate to
projections of the company's revenue, expenses, adjusted EBITDA,
earnings, debt levels, ability to repay outstanding indebtedness,
payment of dividends, repurchases of common stock and other
financial and operational measures, including occupancy and open
hotels, RevPAR, the company's ability to benefit from any rebound
in travel demand, and the company's liquidity, among other matters.
We caution you not to place undue reliance on any such
forward-looking statements. Forward-looking statements do not
guarantee future performance and involve known and unknown risks,
uncertainties and other factors.
These and other risk factors that may affect Choice's operations
are discussed in detail in the company's filings with the
Securities and Exchange Commission, including our Annual Report on
Form 10-K and, as applicable, our Quarterly Reports on Form 10-Q.
Choice undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise, except as required by law.
Non-GAAP Financial Measurements and Other Definitions
The company evaluates its operations utilizing, among others,
the performance metric adjusted EBITDA, which is a non-GAAP
financial measurement. This measure should not be considered as an
alternative to any measure of performance or liquidity as
promulgated under or authorized by GAAP, such as net income. The
company's calculation of this measurement may be different from the
calculations used by other companies, including Wyndham, and
comparability may therefore be limited. We discuss management's
reasons for reporting this non-GAAP measure and how it is
calculated below.
In addition to the specific adjustments noted below with respect
to adjusted EBITDA, the non-GAAP measures presented herein also
exclude restructuring of the company's operations including
employee severance benefit, income taxes and legal costs,
acquisition related due diligence, transition and transaction
costs, and gains/losses on sale/disposal and impairment of assets
primarily related to hotel ownership and development activities to
allow for period-over-period comparison of ongoing core operations
before the impact of these discrete and infrequent charges.
Adjusted Earnings Before Interest, Taxes, Depreciation, and
Amortization: Adjusted EBITDA reflects net income excluding the
impact of interest expense, interest income, provision for income
taxes, depreciation and amortization, franchise-agreement
acquisition cost amortization, other (gains) and losses, equity in
net income (loss) of unconsolidated affiliates, markto-market
adjustments on non-qualified retirement plan investments, share
based compensation expense (benefit) and surplus or deficits
generated by reimbursable revenue from franchised and managed
properties. We consider adjusted EBITDA and adjusted EBITDA margins
to be an indicator of operating performance because it measures our
ability to service debt, fund capital expenditures, and expand our
business. We also use these measures, as do analysts, lenders,
investors, and others, to evaluate companies because it excludes
certain items that can vary widely across industries or among
companies within the same industry. For example, interest expense
can be dependent on a company's capital structure, debt levels, and
credit ratings, and share based compensation expense (benefit) is
dependent on the design of compensation plans in place and the
usage of them. Accordingly, the impact of interest expense and
share based compensation expense (benefit) on earnings can vary
significantly among companies. The tax positions of companies can
also vary because of their differing abilities to take advantage of
tax benefits and because of the tax policies of the jurisdictions
in which they operate. As a result, effective tax rates and
provision for income taxes can vary considerably among companies.
These measures also exclude depreciation and amortization because
companies utilize productive assets of different ages and use
different methods of both acquiring and depreciating productive
assets or amortizing franchise-agreement acquisition costs. These
differences can result in considerable variability in the relative
asset costs and estimated lives and, therefore, the depreciation
and amortization expense among companies. Mark-to-market
adjustments on non-qualified retirement-plan investments recorded
in SG&A are excluded from EBITDA, as the company accounts for
these investments in accordance with accounting for
deferred-compensation arrangements when investments are held in a
rabbi trust and invested. Changes in the fair value of the
investments are recognized as both compensation expense in SG&A
and other gains and losses. As a result, the changes in the fair
value of the investments do not have a material impact on the
company's net income. Surpluses and deficits generated from
reimbursable revenues from franchised and managed properties are
excluded, as the company's franchise and management agreements
require these revenues to be used exclusively for expenses
associated with providing franchise and management services, such
as central reservation and property-management systems, hotel
employee and operating costs, reservation delivery and national
marketing and media advertising. Franchised and managed property
owners are required to reimburse the company for any deficits
generated from these activities and the company is required to
spend any surpluses generated in future periods. Since these
activities will be managed to break-even over time, quarterly or
annual surpluses and deficits have been excluded from the
measurements utilized to assess the company's operating
performance.
RevPAR: RevPAR is calculated by dividing hotel room revenue by
the total number of room nights available to guests for a given
period. Management considers RevPAR to be a meaningful indicator of
hotel performance and therefore company royalty and system revenues
as it provides a metric correlated to the two key drivers of
operations at a hotel: occupancy and ADR. The company calculates
RevPAR based on information as reported by its franchisees. To
accurately reflect RevPAR, the company may revise its prior years'
operating statistics for the most current information provided.
RevPAR is also a useful indicator in measuring performance over
comparable periods.
Pipeline: Pipeline is defined as hotels awaiting conversion,
under construction or approved for development, and master
development agreements committing owners to future franchise
development.
Additional Information
This communication does not constitute an offer to buy or
solicitation of an offer to sell any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the U.S.
Securities Act of 1933, as amended. This communication relates to a
proposal that Choice has made for a business combination
transaction with Wyndham. In furtherance of this proposal and
subject to future developments, Choice (and, if applicable,
Wyndham) may file one or more registration statements, proxy
statements, tender or exchange offers or other documents with the
Securities and Exchange Commission (the "SEC"). This communication
is not a substitute for any proxy statement, registration
statement, tender or exchange offer document, prospectus or other
document Choice and/or Wyndham may file with the SEC in connection
with the proposed transaction.
Investors and security holders of Choice and Wyndham are urged
to read the proxy statement(s), registration statement, tender or
exchange offer document, prospectus and/or other documents filed
with the SEC carefully in their entirety if and when they become
available as they will contain important information about the
proposed transaction. Any definitive proxy statement(s) or
prospectus(es) (if and when available) will be mailed to
shareholders of Choice and/or Wyndham, as applicable. Investors and
security holders will be able to obtain free copies of these
documents (if and when available) and other documents filed with
the SEC by Choice through the web site maintained by the SEC at
www.sec.gov, and by visiting Choice's investor relations site at
www.investor.choicehotels.com.
This communication is neither a solicitation of a proxy nor a
substitute for any proxy statement or other filings that may be
made with the SEC. Nonetheless, Choice and its directors and
executive officers and other members of management and employees
may be deemed to be participants in the solicitation of proxies in
respect of the proposed transaction. You can find information about
Choice's executive officers and directors in the Annual Report on
Form 10-K for the year ended December 31,
2022 filed by Choice with the SEC on March 1, 2023. Additional information regarding
the interests of such potential participants will be included in
one or more registration statements, proxy statements, tender or
exchange offer documents or other documents filed with the SEC if
and when they become available. These documents (if and when
available) may be obtained free of charge from the SEC's website at
www.sec.gov and by visiting Choice's investor relations site at
www.investor.choicehotels.com.
1 $100 million of
synergies x current Choice consensus 2023 EBITDA trading multiple
of 15.0x = $1.50B x 35% pro forma
Wyndham ownership
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SOURCE Choice Hotels International, Inc.