Choice Sees a Clear Path to Completion and
Remains Committed to the Transaction
Ready to Move Expeditiously to Provide
Requisite Transaction Certainty
Strongly Urges Wyndham to Return to the
Negotiating Table
ROCKVILLE, Md., Oct. 25,
2023 /PRNewswire/ -- 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.
Additional materials regarding Choice's proposal are available
on the Company's investor relations page,
investor.choicehotels.com, and at CreateValueWithChoice.com.
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.
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.
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SOURCE Choice Hotels International, Inc.