Today is an exciting one if you’re a Wyndham Hotels & Resorts shareholder because it’s both Friday and it’s the deadline to throw your shares into the ChoiceHam smorgasbord.
Depending on whether you do that will help to focus Choice’s mind on whether it can be bothered with the faff any more, particularly as we’re in conference season and bad blood may spill over onto the beer pong table. Or, as it put it, decide whether to extend or terminate the exchange offer and then evaluate next steps relating to its nomination of a slate of independent directors for election to the board of directors of Wyndham.
But it was, of course confident, commenting in its deadline reminder letter that “resounding feedback from stockholders is that they would like to see Choice and Wyndham genuinely explore a value-maximising transaction in a constructive manner”. Them and our bank managers alike.
But bank managers and shareholders don’t always get what they want, because everyone has an opinion and ideas about what will suit them the best. Choice made a number of arguments in its favour and chose to express them in the manner of a Victorian novel, with comments about “fulsome value” and remaining “steadfast” which will have appealed to a certain clientele.
For everyone else, it said it had made “significant progress addressing regulatory requests and offered above-market regulatory protections, including a significant reverse termination fee and ticking fee”. And what had Wyndham done? Nothing useful to help Choice make a better offer, claimed Choice.
Wyndham has, of course, being doing more than that. On the group’s Q4 results call CEO Geoff Ballotti said that the offer failed “to address three principal concerns; FIRST, the inadequacy of the value of the offer compared with our future growth prospects; second, the significant amount of Choice stock included in the consideration mix, which would expose our shareholders to an over-levered pro forma company with slower long-term growth prospects; and third, the asymmetrical risks to Wyndham and our shareholders resulting from a prolonged and an uncertain regulatory review.
On the regulatory topic, he added, “our concerns regarding the unique risks of this transaction have only increased as the process has unfolded, starting with the Federal Trade Commission’s unsolicited outreach to us in subsequent investigation even before Choice launched its exchange offer. Moreover, State Attorneys General from Washington, Colorado, Kansas, and Vermont have also now opened their own separate investigations.
“The expansive second request we received from the FTC on January 11th is requiring us to provide virtually every communication and every piece of data that relates in any way to our competition with Choice.
“To put this into context, second requests are issued for only around 1% of deals reviewed by the FTC, and they require additional time-consuming back-and-forth discussions and meetings with the agency.”
Regular viewers will recall that AAHOA was so fretful about competition that it did a survey, which found that nearly 80% of owner respondents with either a Choice Hotels or Wyndham property stated that a merger would have a negative impact on their businesses, while nearly 70% of owner respondents with either a Choice Hotels or Wyndham property stated that it was unlikely, or very unlikely, they would consider being a licensee if the Choice Hotels takeover occurred.
Patrick Pacious, Choice president & CEO, said that the group was talking with AAHOA and the Choice Hotels Owners Council, which represents over 3,000 Choice Hotels. He added: “We are in the process of aligning with our franchisee associations on our plan of action, which would ensure that franchisees’ needs are continuously prioritised as part of the proposed combination. We believe a combined company would deliver clear benefits to both Choice and Wyndham franchisees. These include lower hotel operating costs, less reliance on third-party distribution channels and access to Choice’s award-winning technology.”
Is the ChoiceHam deal really about choice? More cash would help grease the wheels, although less so at the FTC, where that sort of antic is less canny negotiation and more crime.
The arguments are familiar to those who have been admiring the sector for some time. It could well be that a combined company would breach the FTC’s 30% market share threshold in terms of franchised economy and midscale hotels. The argument against is one we’ve heard before – and effectively – that the FTC needs to look at the whole hotel market.
Could the deal be saved by ignoring the brands and looking at the bigger picture? Only if someone can find more cash.