Proposal Presents Unacceptable Risk to Wyndham
Shareholders
PARSIPPANY, N.J., Oct. 17,
2023 /PRNewswire/ -- Wyndham Hotels & Resorts
(NYSE: WH) ("Wyndham" or the "Company"), the world's largest hotel
franchising company with approximately 9,100 hotels spanning more
than 95 countries, announced that its Board of Directors
unanimously rejected a highly conditional, unsolicited
stock-and-cash proposal by Choice Hotels International, Inc. (NYSE:
CHH) ("Choice") to acquire all outstanding shares of Wyndham.
Wyndham's Board of Directors, together with its financial and
legal advisors, closely reviewed Choice's latest proposal with a
nominal value of $90 per share,
comprised of 45 percent in stock and 55 percent in cash and
determined that it is not in the best interest of shareholders to
accept the proposal.
In rejecting Choice's proposal, the Wyndham Board of
Directors determined that:
- the proposed transaction involves significant business and
execution risks, including an extended regulatory timeline and
uncertainty of outcome, potential franchisee churn, and excessive
leverage levels at the pro forma combined company
- the consideration mix includes a significant component of
Choice stock, which the Board believes is fully valued relative to
Choice's growth prospects, especially when compared to Wyndham
- the offer is opportunistic and undervalues Wyndham's future
growth potential
"Choice's offer is underwhelming, highly conditional, and
subject to significant business, regulatory and execution risk.
Choice has been unwilling or unable to address our concerns,"
said Stephen P. Holmes, Chairman of
the Wyndham Board of Directors. "While our Board would
support a value-maximizing transaction, given the substantial,
unmitigated embedded risks and value destruction potential
presented by the proposed transaction, our Board determined it is
not in the best interests of Wyndham shareholders. We have
engaged with Choice and its advisors on multiple occasions to
explore these risks. However, it became clear the proposed
transaction likely would take more than a year to even determine
if, and on what terms, it could clear antitrust review, and Choice
was unable to address these long-term risks to Wyndham's business
and shareholders. We are disappointed that Choice's description of
our engagement disingenuously suggests that we were in alignment on
core terms and omits to describe the true reasons we have
consistently questioned the merits of this combination – Choice's
inability and unwillingness to address our significant concerns
about regulatory and execution risk and our deep concerns about the
value of their stock."
Wyndham's Board believes that during the long period between
announcement and closing or termination of the transaction, Wyndham
shareholders would be exposed to the threat of significant
long-term deterioration of Wyndham's brand equity, franchisee
churn, and impaired integration execution at the combined company
in which Wyndham shareholders would have significant interest.
In addition, the significant amount of debt required to fund the
cash portion of the deal would result in the combined company's net
leverage being over 6x adjusted EBITDA. This above-market leverage
would increase execution risk and restrict the balance sheet
flexibility of the combined company, putting downward pressure on
future growth potential, share price and valuation multiples. As a
result, the value creation from cost synergies may not be fully
realized.
Wyndham's Board also has significant questions and concerns
about the value of Choice's stock. Choice's latest offer
includes 45% in Choice stock, which Wyndham's Board believes is
fully valued. Industry experts unequivocally share the view of
Choice being fully valued, with over three-quarters of research
analysts having Choice at a Sell or Hold rating.
Wyndham's Board sees Choice's offer as an attempt to mask their
anemic organic growth and believes Wyndham shareholders are better
positioned owning Wyndham's stock, which has significant upside
relative to Choice's fully valued stock.
-
- Net room growth: Excluding the Radisson acquisition,
Choice's organic total net rooms actually declined year-over-year
by (2%), implying negative organic growth across Choice's broader
brand portfolio for the seventh consecutive quarter. In contrast,
Wyndham's organic total year-over-year net room growth was +3% as
of June 30, 2023, which marks the
seventh consecutive quarter of positive net room growth.
- Revenue and EBITDA growth: After adjusting for the
Radisson acquisition, the organic Choice business displayed 1H 2023
growth in revenue of 0% and an increase in adjusted EBITDA of only
1%, compared to Wyndham's comparable revenue growth of 7% and
comparable adjusted EBITDA growth of 9%.
- EBITDA margin: Wyndham's efficient operations result in
an Adjusted EBITDA margin premium of ~800 basis points compared
with Choice.
- Free cash flow conversion: Wyndham's more efficient
business model results in significantly higher free cash flow
conversion than Choice's.
Choice's offer is an opportunistic attempt to take advantage of
point-in-time stock price fluctuations coinciding with a time
period where the exchange ratio is favorable to Choice.
Choice's offer is insufficient relative to Wyndham's recent
trading levels, significant growth momentum and premiums paid in
precedent change of control transactions. Wyndham's Board believes
Wyndham can deliver long-term shareholder value in excess of
Choice's offer by continuing to execute on its business plan.
- Consistent net room growth. Wyndham has reported seven
consecutive quarters of positive net room growth and anticipates
continued strong system growth going forward that will continue to
provide significant upside to adjusted EBITDA.
- Rapidly growing pipeline. Wyndham's hotel development
pipeline growth continues to outpace peers – up 20% over the last
two years – and, as of June 30, 2023,
stood at an all-time high of approximately 228,000 rooms, which
would contribute more than $120
million in incremental annual stabilized royalties.
- Industry-leading new brands. Wyndham's newly launched
brand, ECHO Suites Extended Stay by Wyndham, has quickly
established itself as the industry's fastest-growing brand with 265
contracts signed since its launch in March
2022.
- International presence and growth. Wyndham's global
brand recognition presents significant upside growth potential in
contrast to Choice's predominantly domestic portfolio. With more
than 3,000 hotels in over 95 countries, the international segment
experienced strong growth with system size increasing by 7% over
the past two years and international royalty rate growing by over
30 basis points since 2019.
- Significant embedded upside from ongoing retention
strategy. Wyndham's signature owner-firstSM
philosophy and ongoing enhancements to its franchisee value
proposition have resulted in its industry-leading LTM franchisee
retention rate improving from 93% at spin-off to over 95% as of
June 30, 2023 with a go-forward
target of greater than 96% (with each percentage point increase
resulting in ~$4.7 million of
incremental royalties and ~$3.9
million of incremental adjusted EBITDA).
- Geographic footprint and value proposition align with
prevailing secular growth trends. Wyndham's industry-leading
domestic footprint is expected to disproportionately benefit from
$1.5 trillion Infrastructure
Investment and Jobs Act and CHIPS and Science Act spending based on
a significant overlap with allocated spend markets, resulting in
incremental royalties of more than $150
million over the next eight years.
Comparison
of Wyndham and Choice Growth Metrics
|
|
|
Wyndham
organic (actual)
|
Choice organic
(excl. Radisson)
|
Choice
(incl. Radisson)
|
1H 2023
performance
|
|
|
|
Number of
rooms
|
851,500
|
--
|
628,901
|
Q2' 23 TTM RevPAR
(U.S.)
|
$51.05
|
--
|
$55.31
|
Total NRG (Y-o-Y
growth)
|
3 %
|
(2%)2
|
9 %
|
|
|
|
|
Revenue
($mm)
|
$6653
|
$625
|
$760
|
Revenue growth (Y-o-Y
growth)4
|
7 %
|
0 %
|
21 %
|
|
|
|
|
Adj. EBITDA
($mm)
|
$3053
|
$229
|
$260
|
Adj. EBITDA growth
(Y-o-Y growth)4
|
9 %
|
1%5
|
15 %
|
Adj. EBITDA
margin6
|
81 %
|
--
|
73 %
|
|
|
|
|
Free cash
flow7 conversion
|
52 %
|
--
|
31 %
|
2023 / 2024
performance
|
|
|
|
2023 Net room growth
(management guidance)
|
2 – 4%
|
--
|
~1%8
|
2023 RevPAR growth
(management guidance)
|
4 – 6%
|
--
|
~2%9
|
|
|
|
|
2023 Adj. EBITDA ($mm)
(management guidance)
|
$654 - $664
|
$468 - $478
|
$530 – $540
|
2024 Adj. EBITDA ($mm)
(consensus estimate)
|
$700
|
$489
|
$569
|
'22 – '24 Adj.
EBITDA CAGR (consensus estimate)
|
7 %
|
3 %
|
9 %
|
2024 Adj. EBITDA
growth (consensus estimate)
|
8 %
|
6 %
|
8 %
|
|
|
|
|
|
|
Note: See appendix
for detailed calculations and footnotes.
|
Background on Choice proposals
On April 28, 2023, Choice submitted to the Wyndham
Board an unsolicited offer to acquire Wyndham for a nominal value
of $80 per share at the time of the
offer, with 40% of the consideration in cash and the remainder in
Choice stock. The Wyndham Board reviewed this offer and
deemed it insufficient. On May 9,
2023, the Wyndham Board responded to Choice that its offer
substantially undervalued Wyndham relative to its standalone
prospects.
On May 15, 2023, Choice submitted
a second unsolicited offer to the Wyndham Board for a nominal value
of $85 per share at the time of the
offer, with 55% of the consideration in cash and the remainder in
Choice stock. On May 29, 2023, the
Wyndham Board responded to this revised proposal with its
conclusion that the proposal continues to substantially undervalue
Wyndham and puts the value of a combined company at risk given the
high level of contemplated debt.
On June 22, 2023,
Wyndham's Chairman and CEO met with Choice's Chairman and
CEO in person to explain Wyndham's concerns about
Choice's proposal, including the regulatory risks.
On August 14, 2023,
Choice's Chairman called Wyndham's Chairman and provided
a third unsolicited verbal offer for a nominal value of
$90 per share at the time of the
offer, with 55% of the consideration in cash and the remainder in
Choice stock, with most of the increase in nominal value from the
prior $85 per share offer coming from
upward movement in Choice's share price during the intervening
period.
On August 17, 2023,
Wyndham's Chairman met with Choice's Chairman in person
to again explain Wyndham's concerns about
Choice's proposal, including the regulatory risks, none of
which were addressed in Choice's latest proposal.
On August 21, 2023, Choice
submitted a third, written unsolicited offer to the Wyndham Board,
reiterating the nominal value of $90
per share verbally offered on August 14,
2023, with 55% of the consideration in cash and the
remainder in Choice stock. On August 22,
2023, the Wyndham Board responded to this revised proposal
with its conclusion that the proposal continues to substantially
undervalue Wyndham relative to its future growth prospects,
includes a substantial stock component which the Board believes is
fully valued relative to Choice's growth prospects, and
involves significant business and execution risks for Wyndham
shareholders.
Wyndham offered to enter into a customary mutual confidentiality
agreement to facilitate discussions around the proposed transaction
and the related risks. Choice refused to sign a mutual
confidentiality agreement, thereby limiting the extent of
engagement between the parties.
On September 5, 2023,
Wyndham's Chairman held a telephonic meeting with
Choice's Chairman to again discuss Wyndham's concerns
about Choice's proposal, but those issues remain unaddressed
by Choice as of today.
During the course of September
2023, Wyndham's counsel held multiple conversations
with Choice's counsel to discuss regulatory and execution
considerations, but Choice was unwilling to propose any mitigations
to address Wyndham's concerns about these risks and was unable
to provide any convincing evidence of a pathway to resolve concerns
raised by Wyndham.
As a result, on September 27,
2023, Wyndham's Chairman informed
Choice's Chairman of the Wyndham Board's decision to
reject the Choice offer and the reasons for that determination.
Deutsche Bank Securities Inc. and PJT Partners are serving as
financial advisors and Kirkland & Ellis LLP is legal advisor to
Wyndham.
About Wyndham Hotels & Resorts
Wyndham Hotels
& Resorts (NYSE: WH) is the world's largest hotel
franchising company by the number of properties, with approximately
9,100 hotels across more than 95 countries on six continents.
Through its network of approximately 852,000 rooms appealing to the
everyday traveler, Wyndham commands a leading presence in the
economy and midscale segments of the lodging industry. The
Company operates a portfolio of 24 hotel brands, including Super
8®, Days Inn®, Ramada®, Microtel®, La Quinta®, Baymont®, Wingate®,
AmericInn®, Hawthorn Suites®, Trademark Collection® and
Wyndham®. The Company's award-winning Wyndham Rewards loyalty
program offers over 103 million enrolled members the
opportunity to redeem points at thousands of hotels, vacation club
resorts and vacation rentals globally.
Forward-Looking Statements
This press release
contains "forward-looking statements" within the meaning of federal
securities laws, including statements related to our
rejection of Choice's unsolicited proposal. The
Company claims the protection of the Safe Harbor contained in the
Private Securities Litigation Reform Act of 1995 for
forward-looking statements. Forward-looking statements
include those that convey management's expectations as to the
future based on plans, estimates and projections at the time the
Company makes the statements and may be identified by words such as
"will," "expect," "believe," "plan," "anticipate," "intend,"
"goal," "future," "outlook," "guidance," "target," "objective,"
"estimate," "projection" and similar words or expressions,
including the negative version of such words and expressions.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
press release.
Factors that could cause actual results to differ materially
from those in the forward-looking statements include, without
limitation, general economic conditions, including inflation,
higher interest rates and potential recessionary pressures; the
worsening of the effects from the coronavirus pandemic
("COVID-19"); COVID-19's scope, duration, resurgence and impact on
the Company's business operations, financial results, cash flows
and liquidity, as well as the impact on the Company's franchisees,
guests and team members, the hospitality industry and overall
demand for and restrictions on travel the Company's continued
performance during the recovery from COVID-19 and any resurgence or
mutations of the virus concerns with or threats of other pandemics,
contagious diseases or health epidemics, including the effects of
COVID-19; the performance of the financial and credit markets; the
economic environment for the hospitality industry; operating risks
associated with the hotel franchising businesses; the Company's
relationships with franchisees; the impact of war, terrorist
activity, political instability or political strife, including the
ongoing conflict between Russia
and Ukraine; the Company's ability
to satisfy obligations and agreements under its outstanding
indebtedness, including the payment of principal and interest and
compliance with the covenants thereunder; risks related to the
Company's ability to obtain financing and the terms of such
financing, including access to liquidity and capital; and the
Company's ability to make or pay, plans for and the timing and
amount of any future share repurchases and/or dividends, as well as
the risks described in the Company's most recent Annual Report on
Form 10-K filed with the Securities and Exchange Commission and any
subsequent reports filed with the Securities and Exchange
Commission. The Company undertakes no obligation to update or
revise any forward-looking statements, whether as a result of new
information, subsequent events or otherwise, except as required by
law.
Appendix
FOOTNOTES
- Reconciliations of non-GAAP financial measures to the
most-directly comparable GAAP financial measures can be found in
the Appendix. Choice metrics are sourced from public filings unless
stated otherwise.
- Choice Q2 2023 room count adjusted for ~67k rooms acquired
from Radisson.
- Includes contribution from Vienna House brand acquisition,
which impacts Y-o-Y growth rates by < 50 basis points.
- Represents a comparison eliminating the contribution
from Wyndham's owned hotels and select-service management
business, both of which were exited in the first half of 2022, as
well as the variability in its marketing fund, which aligns with
Choice's treatment.
- Radisson's 1H 2023 adjusted EBITDA is calculated as assuming
pro rata share of Radisson 2023E contribution of $60 - $65mm per earnings transcript based on Q2
2023 reported Choice adjusted EBITDA as a percentage of FY 2023E
adjusted EBITDA guidance midpoint of $535mm.
- Normalizes results for both companies so that the impacts from
marketing, reservation and loyalty funds and owned hotels are on a
comparable basis.
- Free cash flow is calculated as net cash from operating
activities less capital expenditures.
- Domestic upscale, extended-stay and midscale
segments.
- Domestic segment only.
Appendix
FREE CASH FLOW
The following table reconciles certain non-GAAP financial
measures. We define free cash flow to be net cash provided by
operating activities less property and equipment additions, which
we also refer to as capital expenditures. We believe free
cash flow to be a useful operating performance measure to us and
investors to evaluate the ability of our operations to generate
cash for uses other than capital expenditures and, after debt
service and other obligations, our ability to grow our business
through acquisitions and investments, as well as our ability to
return cash to shareholders through dividends and share
repurchases, to the extent permitted. We believe free cash flow
conversion to be a useful liquidity measure to us and investors to
evaluate our ability to convert our earnings to cash. These
non-GAAP measures are not necessarily a representation of how we
will use excess cash. A limitation of using free cash flow
versus the GAAP measure of net cash provided by operating
activities as a means for evaluating Wyndham Hotels is that free
cash flow does not represent the total cash movement for the period
as detailed in the consolidated statement of cash flows.
|
|
1H
2023
|
Net cash provided by
operating activities
|
|
$
176
|
Less: Property and
equipment additions
|
|
(18)
|
Free cash
flow
|
|
$
158
|
Appendix
ADJUSTED EBITDA
The table below reconciles a non-GAAP financial measure. The
presentation of these adjustments is intended to permit the
comparison of particular adjustments in order to assist investors'
understanding of the overall impact of such adjustments. We believe
that adjusted EBITDA provides useful information to investors about
us and our financial condition and results of operations because
the measure is used by our management team to evaluate our
operating performance and make day-to-day operating decisions and
adjusted EBITDA is frequently used by securities analysts,
investors and other interested parties as a common performance
measure to compare results or estimate valuations across companies
in our industry. The measures also assists our investors in
evaluating our ongoing operating performance for reporting periods
and, where provided, over different reporting periods, by adjusting
for certain items which may be recurring or non-recurring and which
in our view do not necessarily reflect ongoing performance. We also
internally use this measure to assess our operating performance,
both absolutely and in comparison to other companies, and in
evaluating or making selected compensation decisions. These
supplemental disclosures are in addition to GAAP reported measures.
These non-GAAP reconciliation tables should not be considered a
substitute for, nor superior to, financial results and measures
determined or calculated in accordance with GAAP.
The Company is providing certain financial metrics only on a
non-GAAP basis because, without unreasonable efforts, it is unable
to predict with reasonable certainty the occurrence or amount of
all of the adjustments or other potential adjustments that may
arise in the future during the forward-looking period, which can be
dependent on future events that may not be reliably predicted.
Based on past reported results, where one or more of these items
have been applicable, such excluded items could be material,
individually or in the aggregate, to the reported
results.
|
First
Quarter
|
|
Second
Quarter
|
|
|
2023
|
|
|
|
|
|
Net income
|
$
67
|
|
$
70
|
|
|
Provision for income
taxes
|
24
|
|
26
|
|
|
Depreciation and
amortization
|
19
|
|
19
|
|
|
Interest expense,
net
|
22
|
|
24
|
|
|
Early extinguishment of
debt
|
—
|
|
3
|
|
|
Stock-based
compensation
|
9
|
|
9
|
|
|
Development advance
notes amortization
|
3
|
|
4
|
|
|
Transaction-related
|
—
|
|
4
|
|
|
Separation-related
|
2
|
|
(2)
|
|
|
Foreign currency impact
of highly inflationary countries
|
1
|
|
1
|
|
|
Adjusted
EBITDA
|
$
147
|
|
$
158
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Full
Year
|
2022
|
|
|
|
|
|
|
|
|
|
Net income
|
$
106
|
|
$
92
|
|
$
101
|
|
$
56
|
|
$
355
|
Provision for income
taxes
|
34
|
|
31
|
|
38
|
|
16
|
|
121
|
Depreciation and
amortization
|
24
|
|
17
|
|
18
|
|
19
|
|
77
|
Interest expense,
net
|
20
|
|
20
|
|
21
|
|
21
|
|
80
|
Early extinguishment of
debt
|
—
|
|
2
|
|
—
|
|
—
|
|
2
|
Stock-based
compensation
|
8
|
|
9
|
|
8
|
|
8
|
|
33
|
Development advance
notes amortization
|
3
|
|
3
|
|
3
|
|
3
|
|
12
|
(Gain)/loss on asset
sale, net
|
(36)
|
|
1
|
|
—
|
|
—
|
|
(35)
|
Separation-related
|
—
|
|
(1)
|
|
1
|
|
1
|
|
1
|
Foreign currency impact
of highly inflationary countries
|
—
|
|
1
|
|
1
|
|
2
|
|
4
|
Adjusted
EBITDA
|
$
159
|
|
$
175
|
|
$
191
|
|
$
126
|
|
$
650
|
Appendix
QUARTERLY FINANCIAL IMPACT OF
SELECT-SERVICE MANAGEMENT BUSINESS AND OWNED ASSETS
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Full
Year
|
Adjusted EBITDA
contribution
|
|
|
|
|
|
|
|
|
|
2022
|
$
15
|
|
$
3
|
|
$
-
|
|
$
-
|
|
$
18
|
2021
|
3
|
|
11
|
|
10
|
|
12
|
|
37
|
2020
|
12
|
|
(4)
|
|
-
|
|
(5)
|
|
3
|
2019
|
11
|
|
11
|
|
9
|
|
12
|
|
42
|
Appendix
ADJUSTED EBITDA MARGIN
|
|
|
1H
2023
|
|
|
Operating income
margin
|
35 %
|
Depreciation and
amortization
|
6 %
|
Adjusted EBITDA
adjustments
|
5 %
|
Marketing fund
impact
|
35 %
|
Adjusted EBITDA
margin
|
81 %
|
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SOURCE Wyndham Hotels & Resorts