Choice Hotels Buys More Than $110 Million in Wyndham Shares

Choice Hotels said on Tuesday it had bought enough Wyndham stock to nominate candidates to the board of Wyndham, its takeover target.

Choice Hotels said it had bought more than $110 million of Wyndham stock, or nearly 1.7% of stock outstanding, and that it's commencing an exchange offer to present its proposal straight to Wyndham shareholders in a vote next year. The company filed a notification to begin the required regulatory review.

Choice Hotels wants to move quickly. Its exchange offer is scheduled to expire on March 8, though it could extend the offer.

"While we would have preferred to come to a negotiated agreement, the Wyndham Board's refusal to explore a transaction has left us with no choice but to take our proposal directly to Wyndham's shareholders," said Patrick Pacious, president and CEO of Choice.

UPDATE: 10 a.m. Wyndham said its board is reviewing the offer and will give a recommendation to its shareholders within 10 days. It said Choice's offer looks to be unchanged from one it previously rejected for reasons including:

• "The asymmetrical risk to Wyndham shareholders given the uncertainty around antitrust approval (if any)."
• "The undervaluation of Wyndham's superior, standalone growth prospects."
• "The value of Choice shares relative to its growth prospects.
• "The elevated levels of leverage that this deal would require."

Choice went public with its takeover bid on October 17. It made a proposal privately to Wyndham on November 14, but Wyndham publicly rejected it, saying it was a "step backwards."

What's "an exchange offer?"

Choice Hotels is offering shareholders its own stock or other securities to the shareholders of Wyndham in exchange for their shares.

Wyndham shareholders can choose to either receive cash, shares, or a mix of cash and shares, on a prorated basis.

Choice Hotels is setting a ratio of how many new shares or securities would be exchanged for each existing target company share, claiming to offer a premium to the value of Wyndham's stock.

Choice's proposed offer price works out to a 30% premium to Wyndham's closing share price of $69.10 before Choice first publicized its offer. That's 14.9 times the estimate for Wyndham 2023 EBITDA, a higher valuation than Wyndham has had post-pandemic.