Truist Securities suggests that Choice Hotels International Inc.'s hostile bid for Wyndham Hotels & Restaurants Inc. could result in a potential proxy battle.

New Offer and Rejection

On Tuesday, Choice Hotels launched a proposal to acquire Wyndham Hotels for $90 per share. This bid is valued at approximately $7.8 billion on a fully diluted basis, or $9.8 billion, assuming the inclusion of Wyndham's net debt.

It's important to note that Choice had previously made two offers to acquire Wyndham. The initial offer was $80 per share, which was later increased to $85 per share. Nevertheless, these offers were rejected by Wyndham. Choice's latest bid of $90 per share, consisting of 55% cash and 45% Choice stock, is now described as the company's "best and final offer."

Unanimous Rejection and Concerns

In response to Choice's proposal, Wyndham released a statement announcing that its board of directors had unanimously rejected the offer. Stephen P. Holmes, chairman of the Wyndham board, expressed his dissatisfaction with Choice's offer. He stated that the proposal is "underwhelming, highly conditional, and subject to significant business, regulatory, and execution risk." Holmes further pointed out that Choice has failed to address their concerns adequately.

Analyst's Perspective

Truist Securities analyst C. Patrick Scholes acknowledges that Holmes is experienced in mergers and acquisitions. He believes that this could explain why Holmes is strategically holding out for a potentially better offer from Choice or another party. Scholes finds Choice's offer attractive for Wyndham shareholders and deems Choice as the most natural candidate to acquire Wyndham due to their fairly similar portfolio makeup in the U.S. Truist Securities also confirms that no other companies, apart from Choice, have shown interest in Wyndham at this time.

Choice Hotels Makes Public Proposal to Wyndham

Choice Hotels has publicly announced its proposal to engage with Wyndham after the latter's decision to discontinue further discussions. The proposal came after nearly six months of talks between the two companies.

Potential Proxy Battle?

During a call with Truist, Choice Hotels expressed its desire for "engagement" with Wyndham. If Wyndham chooses not to reengage, there could be a potential proxy battle. Truist Securities maintains a hold rating for Choice.

Attractive Offer, but Wyndham Holds Out

Oppenheimer analyst Ian Zaffino finds the offer attractive but feels that Wyndham may hold out for a better price. Zaffino suggests adjusting the stock-for-stock ratio to account for the decline in Choice Hotels' shares and restore the original $90 offer. Wyndham could also request a significant break-up fee to compensate for any potential distractions or franchisee churn during the regulatory and closing process. Wyndham currently has an outperform rating from Oppenheimer.

Previous Acquisition by Choice Hotels

Last year, Choice Hotels acquired Radisson Hotel Group Americas, sealing the deal with an approximate value of $675 million.

Stock Performance

Following this announcement, Choice Hotels' stock remained unchanged in premarket trades but experienced a 6.8% decline during Tuesday's session. On the other hand, Wyndham shares rose by 9% during the previous session but were down 1.8% in premarket trading. In terms of year-to-date performance, Choice shares have risen by 3.3%, while Wyndham shares have seen a gain of 5.6%, compared to the S&P 500 index's 13.9% gain in 2023.

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