Choice Hotels International’s decision to drop its hostile takeover bid for Wyndham Hotels & Resorts is the second high-profile travel deal to disintegrate.
The regulatory hurdles that halted the JetBlue-Spirit merger likely cast a shadow over the hotel deal, potentially creating “more perceived risk” among Wyndham shareholders, said Nicolas Graf, chaired professor and associate dean at the NYU School of Professional Studies Jonathan M. Tisch Center of Hospitality.
But according to Graf, it was opposition from one important group — hotel franchisees — that sealed Choice’s fate.
That opposition was largely led by the Asian American Hotel Owners Association, which put out a statement in late October that strongly objected to a potential Choice-Wyndham merger. The association, whose roughly 20,000 members collectively own around 60% of U.S. hotels, alleged that the deal would “significantly limit their options to find a different brand under which they could successfully operate their hotels.”
“Once you had that, it was really hard [for Choice] to make the case that they’re adding value to the equation by merging,” Graf said. “They were losing the support of their key stakeholders and business partners.”
Choice is believed to have started pursuing Wyndham in the spring of 2023, though it wasn’t until last October that Choice took its proposal to acquire Wyndham public. After being repeatedly rejected, Choice launched its hostile takeover attempt in December, acquiring an ownership position of roughly 1.5 million shares of Wyndham stock and announcing plans to nominate candidates to Wyndham’s board of directors.
When Choice finally abandoned its takeover efforts this week, the company cited a shortage of support from Wyndham shareholders.
“While the support from Wyndham stockholders tendering into the exchange offer was significant considering the number of investors structurally prevented from participating at this stage, it was not sufficient for Choice to conclude that a path toward a transaction is available at this time,” Choice said in a March 11 statement.
At the same time, Choice said it would withdraw its director candidates nominated for election at Wyndham’s 2024 shareholders meeting.
In a note, Morningstar senior equity analyst Dan Wasiolek said that Choice had made “the right call.”
He pointed out that, if combined, Choice and Wyndham would hold an estimated 50% brand share in the economy and midscale segments in the U.S.
“We’ve believed for months that the deal would face regulatory and shareholder hurdles,” Wasiolek said. He added that while the deal had some potential advantages from a loyalty, distribution and marketing standpoint, these benefits were far outweighed by the high likelihood that regulators would block it.
Wasiolek also said that the deal would have done little to diversify Choice’s collection of brands.
Choice’s 22-brand portfolio is weighted heavily toward the economy, midscale and upper-midscale price points, with brands like Comfort, Sleep Inn, Quality Inn, Rodeway Inn and EconoLodge. Wyndham similarly has an outsize presence in these segments: Its 24-brand portfolio is known for flags like Days Inn, Super 8, Travelodge, Ramada, La Quinta and Wyndham Garden.
“Our disdain for the deal centered on the lack of upscale and luxury presence the combined company would still have compared with peers Marriott, Hilton and InterContinental, as the merger stood to only add to Choice’s already heavy economy and midscale exposure,” Wasiolek said.
NYU’s Graf, meanwhile, echoed concerns around regulatory pushback, especially against a backdrop of heightened antitrust scrutiny.
“The political landscape is currently affected by issues related to inflation,” Graf said. “And inflation has been blamed, by some, on industries where you have too few companies competing in the same space. So regulators today are increasingly interested in [how those situations] affect the consumer.”
Any lasting fallout from the failed takeover appears minimal.
“Choice’s brand is intact,” said Morningstar’s Wasiolek, underscoring the company’s healthy room growth in the fourth quarter. He shared a similarly bullish outlook on Wyndham’s prospects, pointing to that group’s healthy pipeline.
NYU’s Graf said he expected Choice and Wyndham to quickly revert to the status quo.
“They’re going to go back to what they’ve been doing, and they’ve both been doing pretty well pre- and post-pandemic,” Graf said. “Both companies are poised to do well in the future, and they’ll continue to compete the way they did in the past.”
