US budget hotel operator Wyndham Hotels and Resorts on Tuesday rejected rival Choice Hotels’ $7.8 billion cash-and-stock acquisition offer, calling it “underwhelming” and citing regulatory risks around a possible combination.
With nearly 1.5 million rooms worldwide between the two hotel groups, the combined entity could attract regulatory scrutiny, analysts said.
Shares of Wyndham closed up 9% at $75.29, but were well below the offer price of $90 per share. Choice Hotels shares slid nearly 7%.
Earlier on Tuesday, Choice Hotels went public with its offer to buy Wyndham after months-long private talks collapsed.
A potential combination would marry Choice Hotels’ brands such as Econo Lodge, Quality Inn and Clarion with Wyndham’s Days Inn and Travelodge, offering inflation-hit customers a wide choice of affordable hotels.
Choice first approached Wyndham in April with an $80 per share offer, which it later bumped up to $85 in May. Both companies were within a “negotiable range” on price a few weeks ago, Choice said on Tuesday.
Geoffrey Ballotti, CEO of Wyndham Hotels, tings the opening bell at the New York Stock Exchange in June. REUTERSChoice’s offer of $90 per share, including $49.50 in cash and 0.324 shares of its common stock for each share held, represents about a 30% premium to Wyndham’s last closing price.
“We were therefore surprised and disappointed that Wyndham decided to disengage,” Choice added.
Rockville, Md.-based Choice, which has nearly 7,500 hotels in 46 countries and territories, has found unit growth challenging and has turned to acquisitions to grow, UBS analysts have said.
Choice Hotels’ brands include Econo Lodge, Quality Inn and Clarion.
Meanwhile, New Jersey-based Wyndham operates and franchises a hotel portfolio of 24 brands that are primarily located in secondary and tertiary cities, according to its annual filing.
Reuters reported in May about a potential deal between the two companies.
Shares of Days Inn owner Wyndham jumped on Tuesday. Paul MartinkaSome analysts said the size of the combined company would mean some divestment would be needed.
“There are big questions that remain though with the largest being regulatory approval/antitrust given what would be a combined heavy concentration of Economy and Midscale rooms in the U.S.” said Truist analyst Patrick Scholes.
Scholes added that during conversations on Tuesday, Choice Hotels was confident in gaining regulatory approvals and believed that the combination would have been “pro-competitive.”
As of Monday’s close, Choice had a total market capitalization of $6.29 billion, while Wyndham’s stood at $5.82 billion.
