Wyndham Update

Wyndham executives said a Choice Hotels offer to buy it has sandbagged them with work in rebuffing the offer and addressing regulators’ concerns. The bill so far is $75 million.

Ever since Wyndham said ‘No’ to Choice Hotels offer last year to buy it, executives have been sandbagged by work related to preventing the hostile merger.

Wyndham said Thursday it has spent $75 million related to the deal so far. Costs include negotiating with and then rebuffing Choice Hotels, answering antitrust queries from the U.S. Federal Trade Commission ($15 million alone), and answering queries from four U.S. state attorney generals.

“It’s a tremendous effort,” said Geoff Ballotti, president and CEO. “Our record fourth quarter could’ve been better both domestically and internationally without the noise.”

Executives described the regulatory review as a “distraction.” They called out as burdensome requests from attorney generals from Washington, Colorado, Kansas, and Vermont, who are pursuing investigations.

Executives cited one request from attorneys that asked the company to list every bid it has ever provided for any franchise service in the past five years, including detailed notes on all aspects of those bids.

Wyndham’s Uneven 2023

The hotel operator reported full-year results that suggested the Choice Hotels merger proposal may have distracted Wyndham’s leadership and led to an underperformance against the company’s potential.

• Net income was down 18% year-over-year to $289 million.

• Net revenue was down 6% year-over-year to $1.397 billion.

• Revenue per available room worldwide was up only 5%, to $43.10.

Wyndham’s Expands Footprint at Record Pace

Ballotti said that uncertainty among potential franchisees about a potential merger had created “a more challenging sales environment.”

Some owners have moved more slowly on committing to deals, he said.

Choice Hotels’s sales team has also taken unspecified actions, presumably badmouthing Wyndham’s brands, to make the deal landscape more “competitive,” he alleged.

Analysts are watching the dynamic closely.

In the past three months of 2023, the company has awarded only three new contracts for the ECHO Suites Extended Stay by Wyndham brand. That pace represented a sharp falloff in deal flow, considering that the company had gathered about 260 commitments earlier in the year after debuting the brand a year ago.

“We wonder if the proposed merger has stalled new signings,” noted Patrick Scholes and Greg Miller at Truist Securities in a report.

Wyndham’s Many Fourth-Quarter Records

Despite the distractions, Wyndham notched several records in its expansion in the final quarter of 2023.

• It grew the number of rooms under management by 5% year-over-year, a record-high pace for the company.

• It closed the year with about 872,000 rooms, supporting its claim to be the world’s largest hotel franchisor.

• It opened 500 hotels with a record 66,000 rooms, 11% more than the number it opened a year earlier.

• Its hotel development pipeline expanded to a record 240,000, an increase of 10% year-over-year.

• About 70% of its pipeline is for brands that are “midscale and above,” meaning that the company is shifting away from its budget hotel roots.

• Its international contract signings were 30% above the pre-pandemic level of 2019, signaling that Wyndham is diversifying its footprint to have more of a presence outside of North America.

• The company improved the percentage by which it retains properties (so that they don’t leave to join other brands or close) to a record 96% worldwide.

“We’re thrilled with the tremendous success in selling through this uncertainty,” Ballotti said.