Wyndham's Board of Directors, together with its financial and legal advisors, closely reviewed Choice's latest proposal with a nominal value of
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
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
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
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
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
Geographic footprint and value proposition align with prevailing secular growth trends. Wyndham's industry-leading domestic footprint is expected to disproportionately benefit from
Comparison of Wyndham and Choice Growth Metrics: See full release at:
https://corporate.wyndhamhotels.com/news-releases/wyndham-board-of-directors-rejects-unsolicited-proposal-from-choice/
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