Choice Hotels Sets the Record Straight on Path to Regulatory Approval of Combination with Wyndham Hotels & Resorts

Rhea-AI Summary

Choice Hotels International, Inc. (NYSE: CHH) issued an investor presentation disputing antitrust claims made by Wyndham Hotels & Resorts, Inc. (NYSE: WH) in connection with Choice's proposal to acquire Wyndham. Choice remains committed to completing the pro-competitive, pro-franchisee, and pro-guest combination for the benefit of both companies' franchisees, shareholders, and guests.

Insights

Market Research Analyst

The proposed acquisition of Wyndham Hotels & Resorts by Choice Hotels International represents a significant consolidation within the hospitality industry. It is essential to analyze the competitive dynamics that such a merger would entail. The combined entity's market share would still be a modest 10% of U.S. room revenue, which suggests that the merger may not significantly disrupt market competition. However, the assertion that this merger would enable franchisees to better compete against larger hotel brands and Online Travel Agencies (OTAs) is notable. OTAs, which control a substantial share of online bookings, exert considerable influence over pricing and visibility in the hotel industry. A merger could potentially provide the combined entity with increased bargaining power and marketing capabilities to challenge the dominance of OTAs.

Furthermore, the enhancement of the rewards program could be a strategic move to foster brand loyalty and customer retention, which are critical factors in the highly competitive hospitality sector. The anticipated benefits for franchisees, such as cost reductions and improved profitability, could incentivize support for the merger. However, it is essential to monitor the regulatory review process closely, as antitrust considerations will play a pivotal role in determining the feasibility of the merger.

Financial Analyst

From a financial perspective, the acquisition of Wyndham by Choice Hotels could lead to economies of scale, potentially resulting in lower operational costs and improved margins for the combined entity. The increased scale could also enhance the combined company's ability to invest in technology and marketing, driving top-line growth. Investors should consider the potential for cost synergies and revenue enhancements when evaluating the impact of the merger on the financial performance of Choice Hotels.

It is also important to consider the acquisition's financing structure, as the involvement of reputable financial advisors such as Moelis & Company LLC, Goldman Sachs & Co. LLC and Wells Fargo indicates a well-structured deal. The legal expertise of Willkie Farr & Gallagher LLP and Axinn, Veltrop & Harkrider LLP will be crucial in navigating the complex antitrust landscape.

Legal Expert

The legal implications of the Choice-Wyndham merger are a critical aspect of this transaction. Antitrust laws are designed to prevent anti-competitive practices and ensure a competitive market landscape. Choice's presentation argues that Wyndham's market definition is overly narrow and not aligned with legal and regulatory precedents, as demonstrated by the approval of the Marriott-Starwood merger. The Second Request process with the FTC is a standard procedure for transactions of this magnitude and it will provide a more in-depth review of the merger's implications on competition.

Choice's confidence in obtaining regulatory approval within a customary one-year timeframe is an important consideration for stakeholders. However, the outcome of the regulatory review is uncertain and any delays or required concessions could impact the merger's perceived benefits. Stakeholders should remain attentive to developments in the regulatory process, as they will have significant implications for the merger's completion and the future competitive landscape of the hospitality industry.

Calls Out Wyndham's Campaign of Disinformation

Reiterates Commitment to Completing Pro-Competitive, Pro-Franchisee, and Pro-Guest Combination 

NORTH BETHESDA, Md., Jan. 10, 2024 /PRNewswire/ -- Choice Hotels International, Inc. (NYSE: CHH) (the "Company" or "Choice"), today issued an investor presentation and infographic disputing the false and misleading antitrust claims made by Wyndham Hotels & Resorts, Inc. (NYSE: WH) ("Wyndham") in connection with Choice's proposal to acquire Wyndham. The presentation has been filed with the U.S. Securities and Exchange Commission and is also available at CreateValueWithChoice.com.

Patrick Pacious, President and Chief Executive Officer of Choice Hotels, said, "We are disappointed Wyndham is pushing this disinformation campaign. Their take on the antitrust risk on our proposed combination is misleading and further reflects the board's apparent entrenchment. Wyndham's characterization of the lodging industry's competitive landscape and relevant regulatory criteria is incorrect. Our pro-competitive combination is well positioned to obtain approval, and we remain committed to completing it for the benefit of both companies' franchisees, shareholders and guests."

Highlights of the presentation include:

• Wyndham is hinging its argument on a manipulated version of the lodging industry, fabricated to drive unsubstantiated antitrust concerns: Wyndham arbitrarily segments hotels based on STR¹ chain scales, but STR¹ chain scales are not meaningful under antitrust law. Wyndham overlooks that Choice and Wyndham account for only 10% of U.S. room revenue. Wyndham willfully ignores the intense competition between hotel brands for guests and franchisees and the fact that existing brands regularly move up and down STR chain scales. Wyndham further ignores independent hotels, which comprise approximately 45% of the market. Wyndham's overly narrow definition of the market is contradicted by clear legal and regulatory precedent and has already been rejected by antitrust enforcers in their approval of the Marriott-Starwood combination.
  
  
• Wyndham's improperly constrained market definition still includes nine other major competitors, including Marriott, Hilton, and IHG: While Wyndham implies that even the biggest hotel companies would be unable to compete with the combined company for franchisees, these companies' brands are already competing today. Wyndham is focused on the past, ignoring the many new and legacy competing brands that are rapidly growing in the STR midscale and economy segments. A Choice-Wyndham combination would leave the combined company well positioned to compete in this increasingly competitive landscape.
  
  
• Combining Choice and Wyndham would help franchisees reduce costs, improve profitability and counteract dominant market players and OTAs: By combining the two companies, franchisees would be better positioned to compete against larger, well capitalized hotel brand rivals. They would also compete more effectively with leading OTAs, which currently account for more than half of online hotel bookings and have a marketing spend that is 10 times larger than Choice and Wyndham combined. Together, Choice and Wyndham would drive top-line growth for franchisees through increased brand marketing spend and expand customer reach with a more robust rewards program.
  
  
• Combination would provide guests with expanded lodging options and an enhanced rewards program: The combined company would offer a fulsome suite of participating properties across hotel types and locations, providing more opportunities for guests to earn and redeem points. This combination would also expand benefits and rewards for guests by creating an enhanced rewards program on par with the leading hotel rewards programs. Importantly, a Choice-Wyndham combination would not change competition for guests because franchisees would continue to control pricing.
  
  
• Choice is proceeding along the expected path of regulatory review: Despite Wyndham's refusal to engage, Choice is making progress on the regulatory process with the U.S. Federal Trade Commission ("FTC"). Choice expects to continue cooperating with the FTC during the Second Request process, which Choice expects to commence on January 11. Choice remains confident that it can complete the combination within a one-year customary timeframe.

Advisors

Moelis & Company LLC, Goldman Sachs & Co. LLC and Wells Fargo are serving as financial advisors to Choice and Willkie Farr & Gallagher LLP and Axinn, Veltrop & Harkrider LLP are serving as legal advisors.

About Choice Hotels®

Choice Hotels International, Inc. (NYSE: CHH) is one of the largest lodging franchisors in the world. The challenger in the upscale segment and a leader in midscale and extended stay, Choice® has nearly 7,500 hotels, representing almost 630,000 rooms, in 46 countries and territories. A diverse portfolio of 22 brands that range from full-service upper upscale properties to midscale, extended stay and economy enables Choice® to meet travelers' needs in more places and for more occasions while driving more value for franchise owners and shareholders. The award-winning Choice Privileges® loyalty program and co-brand credit card options provide members with a fast and easy way to earn reward nights and personalized perks. For more information, visit www.choicehotels.com.

Forward-looking Statements

Information set forth herein includes "forward-looking statements". Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "expect," "estimate," "believe," "anticipate," "should," "will," "forecast," "plan," "project," "assume," or similar words of futurity. All statements other than historical facts are forward-looking statements. These forward-looking statements are based on management's current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to management. Such statements include, but are not limited to, the ultimate outcome of any possible transaction between Choice and Wyndham (including the possibility that the parties will not agree to pursue a business combination transaction or that the terms of any definitive agreement will be materially different from those described herein); uncertainties as to whether Wyndham will cooperate with Choice regarding the proposed transaction; Choice's ability to consummate the proposed transaction with Wyndham; the conditions to the completion of the proposed transaction, including the receipt of any required shareholder approvals and any required regulatory approvals; Choice's ability to finance the proposed transaction with Wyndham; Choice's indebtedness, including the substantial indebtedness Choice expects to incur in connection with the proposed transaction with Wyndham and the need to generate sufficient cash flows to service and repay such debt; the possibility that Choice may be unable to achieve expected synergies and operating efficiencies within the expected timeframes or at all and to successfully integrate Wyndham's operations with those of Choice, including the Choice loyalty program; the possibility that Choice may be unable to achieve the benefits of the proposed transaction for its franchisees, associates, investors and guests within the expected timeframes or at all, including that such integration may be more difficult, time-consuming or costly than expected; that operating costs and business disruption (without limitation, difficulties in maintaining relationships with associates, guests or franchisees) may be greater than expected following the proposed transaction or the public announcement of the proposed transaction; and that the retention of certain key employees may be difficult. Such statements may relate to projections of Choice's revenue, expenses, adjusted EBITDA, earnings, debt levels, ability to repay outstanding indebtedness, payment of dividends, repurchases of common stock and other financial and operational measures, including occupancy and open hotels, revenue per available room, Choice's ability to benefit from any rebound in travel demand, and Choice's liquidity, among other matters. We caution you not to place undue reliance on any such forward-looking statements. Forward-looking statements do not guarantee future performance and involve known and unknown risks, uncertainties and other factors.

These and other risk factors that may affect Choice's operations are discussed in detail in the applicable company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K and, as applicable, its or Wyndham's Quarterly Reports on Form 10-Q. These forward-looking statements speak only as of the date of this presentation or as of the date to which they refer, and Choice assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.

Additional Information

This communication relates to a proposal that Choice has made for a business combination transaction with Wyndham and the exchange offer which Choice, through WH Acquisition Corp., its wholly owned subsidiary, has made to Wyndham stockholders. The exchange offer is being made pursuant to a tender offer statement on Schedule TO (including the offer to exchange, the letter of election and transmittal and other related offer documents) and a registration statement on Form S-4 filed by Choice on December 12, 2023. These materials, as may be amended from time to time, contain important information, including the terms and conditions of the offer. In furtherance of this proposal and subject to future developments, Choice (and, if applicable, Wyndham) may file one or more registration statements, proxy statements, tender or exchange offers or other documents with the Securities and Exchange Commission (the "SEC"). This communication is not a substitute for any proxy statement, registration statement, tender or exchange offer document, prospectus or other document Choice and/or Wyndham may file with the SEC in connection with the proposed transaction.

This communication does not constitute an offer to buy or solicitation of an offer to sell any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended. Investors and security holders of Choice and Wyndham are urged to read the proxy statement(s), registration statement, tender or exchange offer document (including the offer to exchange, the letter of election and transmittal and other related offer documents), prospectus and/or other documents filed with the SEC carefully in their entirety if and when they become available as they will contain important information about the proposed transaction. Any definitive proxy statement(s) or prospectus(es) (if and when available) will be mailed to shareholders of Choice and/or Wyndham, as applicable. Investors and security holders may obtain free copies of these documents (if and when available) and other documents filed with the SEC by Choice through the web site maintained by the SEC at www.sec.gov, and by visiting Choice's investor relations site at www.investor.choicehotels.com.

This communication is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that may be made with the SEC. Nonetheless, Choice and its directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. You can find information about Choice's executive officers and directors in the Annual Report on Form 10-K for the year ended December 31, 2022 filed by Choice with the SEC on March 1, 2023. Additional information regarding the interests of such potential participants will be included in one or more registration statements, proxy statements, tender or exchange offer documents or other documents filed with the SEC if and when they become available. These documents (if and when available) may be obtained free of charge from the SEC's website at www.sec.gov and by visiting Choice's investor relations site at www.investor.choicehotels.com.

In this communication, we reference information and statistics regarding the Travel Industry. We have obtained this information and statistics from various independent third-party sources, including independent industry publications, reports by market research firms and other independent sources, such as Euromonitor International Limited. Some data and other information contained in this communication are also based on management's estimates and calculations, which are derived from our review and interpretation of internal surveys and independent sources. Data regarding the industries in which we compete and our market position and market share within these industries are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position and market share within these industries. While we believe such information is reliable, we have not independently verified any third-party information. While we believe our internal company research and estimates are reliable, such research and estimates have not been verified by any independent source. In addition, assumptions and estimates of our and our industries' future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. These and other factors could cause our future performance to differ materially from our assumptions and estimates. As a result, you should be aware that market, ranking and other similar industry data including in this communication, and estimates and beliefs based on that data, may not be reliable. We cannot guarantee the accuracy or completeness of any such information contained in this communication.

¹ STR, a division of CoStar Group, Inc., provides premium data benchmarking, analytics and marketplace insights for the global hospitality industry.

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SOURCE Choice Hotels International, Inc.

FAQ

What is the investor presentation about?

The investor presentation disputes antitrust claims made by Wyndham Hotels & Resorts, Inc. in connection with Choice's proposal to acquire Wyndham.

What is the ticker symbol for Choice Hotels International, Inc.?

The ticker symbol for Choice Hotels International, Inc. is CHH.

What is the ticker symbol for Wyndham Hotels & Resorts, Inc.?

The ticker symbol for Wyndham Hotels & Resorts, Inc. is WH.

Who are the financial and legal advisors for Choice in this matter?

Moelis & Company LLC, Goldman Sachs & Co. LLC, Wells Fargo, Willkie Farr & Gallagher LLP, and Axinn, Veltrop & Harkrider LLP are serving as financial and legal advisors to Choice.

What is the expected path of regulatory review for Choice?

Choice is making progress on the regulatory process with the U.S. Federal Trade Commission and expects to continue cooperating with the FTC during the Second Request process.