Choice Hotels CEO on battle to buy larger rival Wyndham: Shareholders support our offer
Choice Hotels CEO Pat Pacious is ready to book a stay inside the boardroom of budget hotel rival Wyndham to conduct some due diligence.
Pacious told Yahoo Finance Live on Thursday his company's offer to buy Wyndham is strong and has the support of institutional investors on both sides.
To be sure, Choice's hostile play to buy the much larger Wyndham is shaping up to be a classic merger barnburner.
After months of discussions on a combination, which began in April according to documents, Choice went public on Tuesday with its bid to purchase Wyndham after talks broke down several weeks ago.
Choice offered $7.8 billion to buy Wyndham, or $90 a share in a mix of cash and stock. Since the announcement, Choice shares have dropped 8.9%. Wyndham has gained 7.6% to $74 — well below the offer price by Choice — on uncertainty regarding a possible tie-up.
The company initially offered $80 a share in April to buy Wyndham, then lifted the price to $85 a few months later.
Choice contends $90 a share is its best and final offer.
The company says it's in contact with investment banks to fund a combination that will bring Howard Johnson and Super 8 (Wyndham, with 9,300 total locations) and Comfort and Quality Inn (Choice, 7,500 locations) under one umbrella.
Pacious says he expects executives at Wyndham to return to the negotiating table. They have not reconnected in the two days since the offer was made public, Pacious added.
Greater scale would give the combined company more than 16,800 locations worldwide, 160 million loyalty members, and $150 million in cost synergies, Choice says. The combination would allow the new entity to better compete with behemoths Marriott and Hilton for economy and business travelers.
While the deal makes sense on paper — and comes after Choice's successful integration of its $675 million Radisson hotel deal in 2022 — Wyndham isn't interested ... at least at the current price.
"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 chairman (and former longtime CEO) Stephen Holmes in a statement.
"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."
Wyndham — which did not return Yahoo Finance's request for further comment — also slammed the fundamentals of Choice's business in a presentation.
The company believes it has consistently produced better revenue growth and margins than Choice Hotels, among other nuances. Moreover, Wyndham is concerned about the debt needed to fund the deal and heightened regulatory scrutiny.
Moody's came out Tuesday and said the deal may be a negative for Choice's credit rating.
"We think CHH needs to sell this deal to WH’s investor base, especially its (aggressive?) synergies target (given the large equity component that WH would receive) and its ability to quickly de-lever," said JP Morgan analyst Joseph Greff in a client note.
Pacious says he is ready to dig in for a protracted fight to grab his latest prize.
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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