Hotels refine the rules of engagement

We tend to be a pretty bonhomous bunch in the hotel sector. We like to think it’s because we deal in hospitality, but it is becoming increasingly apparent that it’s because there are so few of us. We keep each other honest. There’s nowhere to hide.

We are sad to note that the start to 2024 has been coloured already by some pretty uncouth behaviour. This is not to say we are immune to it – Denizen was a long time ago, but if you were there, you were there – and 2013/14 saw some pretty feisty open letters during the Morgans Hotel Group debacle, including one where investor Ron Burkle likened CEO Jason Kalisman to “a spoiled child”.

This was allowable not because the whole episode was hugely entertaining (it was) but because Burkle is not a specialist hotel investor, so doesn’t know any better.

Back in hotel land, December last year saw a ramping up of the snotty behaviour between Wyndham and Choice, accurately described by Skift’s Sean O’Neill as having entered the ‘recriminations’ phase. This would be the phase where, should this deal go ahead, any future ChoiceHam board is going to have to go through a truth and reconciliation process more akin to what one might see at the end of a civil war.

At the moment, the pair have not entered the spoiled child end of the market, but are at the ‘black is white’ stage. Choice claimed that Wyndham was in discussions with it in December. Wyndham did not so much say it wasn’t as failed to say that it was. Wyndham, for its part, has maintained that the offer was “inadequate and undervalues Wyndham’s superior, standalone growth prospects”. Which sounds like it is something which could be resolved with cash, where it not for Wyndham tacking on that the “reception from franchisees has been extremely negative”. So you can’t afford us and no one likes you anyway.

Away from the Billy Joel, Uptown Girl connotations, this last comment refers back to comments made by AAHOA, whose members reportedly own more than 60% of Choice- and Wyndham-branded hotels.

The group said that it was concerned that the combined company would have more than 16,500 hotels and 46 brands, “totally dominating the US economy, midscale and upper-midscale hotel segments. A combined company would weaken the power of franchisees, force them to share the same brand reservation systems and would weaken any applicable areas of protection”.

In addition to opposing the deal, AAHOA has already pushed for an FTC investigation and has indicated that it will try to block any antitrust approval.

This intriguing comment plays into the nuance between owners needing scale, but not so much that they are lost in the machine.

Meanwhile, rather like one of those parasitic wasps who eject eggs into a host and turn them into zombies, Reuters reported that Choice was buying Wyndham shares with a view to nominating board members and, well, doing it that way. Wyndham’s board has recommended that shareholders reject the offer, while Choice says that it has had friendly chats with institutional shareholders representing over 40% of shares and actually, they seem to like the sound of it.

Will a deal happen? While the pair go all West Side Story and start to build their factions, as long as someone comes up with extra cash an unseemly conflict should be avoided without the need for any poison pills.

Looking elsewhere in the sector, December was a strong month for the listed hotel companies, suggesting that investors are looking at ChoiceHam and liking what they see. Let’s hope everyone can remember their manners.

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