Choice Looks to Impose Two Years of Regulatory
Limbo and Significant Business Risk on Wyndham Shareholders and
Fails to Address Substantial Concerns with Prior Offer Now Valued
at $86
PARSIPPANY, N.J., Nov. 21,
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, today announced that its Board of Directors
received a letter from Choice Hotels International, Inc. (NYSE:
CHH) ("Choice"), on November 14,
2023. Wyndham's Board of Directors, together with its
financial and legal advisors, closely reviewed Choice's letter and
determined that it represents a step backwards and that the terms
Choice outlined are not in the best interests of Wyndham or its
shareholders. Wyndham responded to Choice in a letter dated
November 21, 2023, included
below.
Choice's first communication in a month since its public disclosure
of its unsolicited proposal contains no change to the form of
consideration and continues to undervalue Wyndham's standalone
growth prospects. At Choice's current share price, its offer to
acquire all outstanding shares of Wyndham stands at a value of
$86 per share[1], below the nominal
value of $90 per share proposed on
October 17, 2023, the date of
Choice's public disclosure. The letter proposes a two-year period
for Choice to seek to obtain regulatory approvals supported only by
a low 6% reverse termination fee, which would both create a
prolonged period of limbo and expose Wyndham and its
shareholders to significant asymmetrical risk.
Stephen P. Holmes, Chairman of the Wyndham Board of Directors,
said, "Choice continues to ignore our major concerns around value,
consideration mix, and asymmetrical risk to our shareholders given
the uncertainty around regulatory timeline and outcome. In
addition, Choice's existing proposal is valued at $86 per share, lower than the unsolicited public
proposal of $90 per share they made a
month ago. Given they now explicitly acknowledge the legitimate
issues around the regulatory timeline, they are essentially asking
our shareholders to take on serious risk and accept as compensation
for a failed deal a low reverse termination fee that doesn't even
begin to compensate for the potential lost earnings and long-term
impairment to value that could occur during an uncertain two-year
regulatory review. In line with our fiduciary duties, we will of
course always evaluate any serious proposal, but Choice continues
to fail to adequately address any of the three core issues we have
repeatedly raised. They have instead chosen to prolong this for
months with a proposal that remains unfeasible, damaging to our
business, and unnecessarily distracting to our management
team."
____________________
[1] Reflects value as of 11/20/2023, assuming $49.50 in cash and 0.324 Choice shares for each
Wyndham share.
The following is the full text of Wyndham's letter to Choice
on November 21, 2023, in response to
Choice's letter:
Dear Stewart,
We received Pat
Pacious' letter of November 14
and shared it with our Board of Directors who discussed it at a
special meeting.
While you characterize the letter as your
fifth, the real question is whether the letter advances the
discussion. Unfortunately, this letter does not, and in fact
represents a step backwards despite being delivered nearly a full
month after you decided to unilaterally go public with your
unsolicited proposal.
We have repeatedly articulated three primary
concerns: (1) undervaluation of our superior, standalone growth
prospects, (2) the value of Choice shares relative to its growth
prospects and further compromised by elevated levels of leverage
that this deal would require, and (3) the uncertain regulatory
timeline and outcome and resulting significant asymmetrical risk to
our shareholders.
Unfortunately, despite your assertion to the
contrary, your letter fails to adequately address any of these
concerns and therefore a combination on the terms you propose
continues to not be in the best interest of Wyndham or its
shareholders.
As to the first and second concerns, they are
not even mentioned in your letter, let alone solved, despite your
public comments that you were prepared to address them with
available tools and our repeated guidance that an all-cash deal
would obviate concerns about Choice's shares. Also, while you frame
your proposal as being $90 per share,
it is actually currently valued at $86 per share.
With respect to the regulatory issues and
terms, we wanted to first address misrepresentations in your
letter, as well as ones that have been raised in prior
conversations:
-
- Neither we nor our advisors have ever described this
transaction as "pro-competitive."
- Neither we nor our advisors have ever stated that clearance
of the transaction is certain.
- We have repeatedly expressed our serious concerns and, if
anything, they have only increased since you chose to unilaterally
go public with your proposal. The reception from the Wyndham
franchisee community has been unenthusiastic to say the least, as
evidenced by the vehement opposition from AAHOA, which represents
about two-thirds of our respective franchisees.
With respect to the proposed terms relating
to regulatory matters, while you have put some specific numbers to
prior qualitative statements, they continue to fall far short of
what is required to address the asymmetrical risk to Wyndham
shareholders. Instead, they represent a step backwards in your
position.
For the first four months of our
interactions, your team repeatedly conveyed confidence that the
transaction would clear regulatory approvals within 60 days. Only
after repeated conversations with our advisors did your team
finally acknowledge the possibility of an in-depth review and
Second Request. Your stance has clearly shifted once again on this
point: now, you are proposing a two-year period for you to seek to
obtain regulatory approvals, which is not at all assured. This
significantly exacerbates our concerns about the potential
substantial damage and disruption to our business during this time.
As we described in our Investor Presentation on October 26, a prolonged period of limbo exposes
Wyndham to meaningful risks, including new business development
disruption and deterioration in segment-leading retention rates
resulting in impaired earnings growth, competitors (including
Choice) capitalizing on franchisee uncertainty, stagnated
development of our fast-growing ECHO Suites brand, and challenges
attracting and retaining team members, among other things. This
significant value destruction will impact earnings and compound
over time, and potentially cause long-term impairment to our
trading multiple.
And these concerns are not merely
theoretical. Since May, when your interest was leaked to the Wall
Street Journal, your franchise sales team and executive leadership
have been actively exploiting the uncertainty around Wyndham that
you created to seek a competitive advantage in the market for
franchisees and development partners. For example, your
representatives have told owners and prospects that completion of
the acquisition is a "100% certainty," in an apparent attempt to
discourage them from doing business with Wyndham. While our
best-in-class management team has been working actively to mitigate
this threat, this risk would only grow worse in the event of a
signed transaction with a possible two-year timeline.
While your proposal of a 6% reverse
termination fee (ironically calculated off the current $86 per share value of your offer) finally
quantifies your prior public comments about a "market" fee, we have
consistently told you that such a fee does not even begin to
compensate for the damage to our business in the event the deal
does not close after an extended regulatory review, a concern made
even worse by your new proposal for a 24 month drop-dead date.
Given your advisor's recent characterization of your confidence
level in the deal closing being "100%", we are deeply puzzled by
your unwillingness to agree to a robust fee that protects us in
circumstances that you see no chance of ever happening.
Our Board of Directors remain faithful
fiduciaries representing the best interests of Wyndham and its
shareholders and other stakeholders and stand ready to evaluate and
engage in discussions if you make a proposal that adequately
addresses each of the three significant concerns we have raised on
multiple occasions. Given your persistent unwillingness to
adequately and promptly address the three concerns that have been
consistently communicated or to abandon your current proposal, we
are compelled to make our response public as we are not prepared to
expose Wyndham's business to continued uncertainty, from which you
benefit competitively.
Sincerely,
Stephen P.
Holmes
The following is the full text of Choice's letter to Wyndham
on November 14, 2023:
Dear Directors:
On behalf of Choice Hotels International,
Inc. ("Choice" or "we"), I am pleased to present you with this
enhanced proposal (the "Proposal") to pursue a business combination
(the "Transaction") with Wyndham Hotels & Resorts, Inc.
("Wyndham" or "you"). This fifth letter takes into consideration
the feedback we received from you, the market, and our respective
shareholders and franchisees. We made a compelling offer to you on
October 17, 2023, and are responding
to your request for more clarity regarding risk allocation in the
context of the regulatory framework. The industrial logic of the
Transaction is irrefutable, and as already discussed amongst
principals and legal advisors over the past few months, this
transaction is pro-competitive and the required regulatory
approvals are obtainable. In addition, our franchisees, many of
whom own both Wyndham and Choice brands, have instantly grasped the
benefits of this combination, particularly in light of rising
operational costs. This combination will drive more direct
bookings, lower hotel operating costs, and create a stronger
rewards program. As such, we believe now is the right time to
reengage in a direct and private dialogue in order to negotiate a
Transaction that is in the best interest of all our respective
stakeholders.
Regulatory Framework:
We are prepared to offer Wyndham significant
protections to address your stated concerns regarding potential
regulatory uncertainty, including:
-
- Reverse termination fee of $435
million, which represents approximately 6.0% of the total
equity purchase price.
- While we do not anticipate it would be triggered, a
regulatory ticking fee of 0.5% of the total equity purchase price
per month, accruing daily after the one-year anniversary of the
signing of definitive agreements.
- Choice agrees to take any actions required by antitrust
regulators to close so long as such actions would not have a
material adverse effect on the combined company, subject only to
agreeing to an outside date 12 months post-signing of a definitive
agreement, with two 6-month extensions exercisable by either party,
if regulatory approvals have not been obtained by such
date.
- Wyndham's ability to operate in the ordinary course of
business during the pendency of the transaction, subject to limited
customary negative covenants.
With these protections, we believe that
Choice's conviction and commitment to closing the transaction will
deliver the requisite level of contractual certainty to your
shareholders.
Transaction Value:
We are offering $49.50 per share in cash and 0.324 shares of
Choice stock.
-
- Equates to $90.00
per Wyndham share based on Choice's stock price as of
October 16, 2023 (the "Pre-Release
Date").
- Represents a 31% premium to your unaffected share price on
May 22, 2023 (prior to WSJ leak)
and a 24% premium to your share price as of the Pre-Release Date
based on Choice's current stock price, and 37% and 30% premiums,
respectively, based on Choice's stock price as of the Pre- Release
Date.
- Maintains the cash or stock election mechanism, subject to a
customary proration mechanism.
- Equates to pro forma ownership in the combined company of
35%.
- Implies a consensus 2023 Adjusted EBITDA multiple of 14.9x
based on the Pre-Release Date value.
Governance:
We propose that two mutually acceptable
independent members of the Wyndham board of directors join the
combined company board upon the completion of the Transaction,
consistent with our prior offer.
Information Sharing / NDA:
We are prepared to enter into a mutual
Non-Disclosure Agreement ("NDA") to provide for direct negotiation
of binding agreements consistent with this Proposal. We believe
that we could conclude such negotiation, documentation, and
confirmatory due diligence within 20 business days of your good
faith engagement with us on the basis of the terms of this letter.
During that time, we would be amenable to a limited NDA, provided
that:
-
- The NDA would not prevent the pursuit of an exchange
offer or proxy contest in the event we are mutually unable to agree
on final terms.
- We would be permitted to contact director candidates and
prepare for, but not launch, a proxy contest or exchange offer,
without prior notice.
- No information shared under the NDA would be permitted
to be publicly disclosed in the event of a public process.
We believe that this enhanced Proposal
specifically addresses the concerns that you have raised to date
and are hopeful that you will reengage on the basis of the terms of
this letter.
We look forward to discussing this Proposal
with you.
Best
regards,
Patrick Pacious
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 over 95 countries on six
continents. Through its network of approximately 858,000
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 approximately
105 million enrolled members the opportunity to redeem points at
thousands of hotels, vacation club resorts and vacation rentals
globally. For more information, visit
www.wyndhamhotels.com. The Company may use its website as a
means of disclosing material non-public information and for
complying with its disclosure obligations under Regulation
FD. Disclosures of this nature will be included on the
Company's website in the Investors section, which can currently be
accessed at https://investor.wyndhamhotels.com. Accordingly,
investors should monitor this section of the Company's website in
addition to following the Company's press releases, filings
submitted with the Securities and Exchange Commission and any
public conference calls or webcasts.
Forward-Looking Statements
This press release contains "forward-looking statements"
within the meaning of federal securities laws, including statements
related to our response to Choice's most recent letter to our
Board. 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.
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SOURCE Wyndham Hotels & Resorts