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After discussions broke down regarding a megamerger in the budget hotel space, Choice Hotels International unveiled an offer to buy its rival, Parsippany-based hotel franchising company Wyndham Hotel & Resorts, for $7.8 billion.

In an Oct. 17 announcement, the Rockville, Md.-headquartered chain said it is offering to pay $90 a share in cash and stock ($49.50 in cash and 0.324 shares), in a deal valued at about $9.8 billion, including the assumption of debt.

The deal price is 30% above Wyndham’s Oct. 16 closing price of $69.10 and an 11% premium to the stock’s 52-week high.

According to Choice, it first approached Wyndham in April with a $80 per share offer and bumped that number up to $85 a month later. Then, it was increased to $90 per share – comprised of 55% cash and 45% Choice stock – as the board chairs and CEOs of each company met, Choice said.

However, last month, Wyndham expressed concerns about regulatory approval as well as the value of Choice stock, according to the potential acquiror.

As of “a few weeks ago,” both “were in a negotiable range on price and consideration” and had a “shared recognition of the value opportunity this potential transaction represents,” Choice CEO Patrick Pacious said in a statement.

“We were therefore surprised and disappointed that Wyndham decided to disengage. While we would have preferred to continue discussions with Wyndham in private, following their unwillingness to proceed, we feel there is too much value for both companies’ franchisees, shareholders, associates, and guests to not continue pursuing this transaction,” he said.

Under the terms of the latest proposal, Wyndham shareholders would be allowed to choose either cash, stock, or a combination of cash and stock. It also includes giving Wyndham two seats on the combined company’s board.

In an Oct. 17 statement, Wyndham’s board of directors said it believes the proposed transaction “is not in the best interest of shareholders” because it “involves significant business and execution risks, including an extended regulatory timeline and uncertainty of outcome, potential franchisee churn, and excessive leverage levels at the pro forma combined company.”

Stephen Holmes, Wyndham board chairman, said that while the board “would support a value-maximizing transaction,” it finds the latest proposal “underwhelming” and “highly conditional.”

“We have engaged with Choice and its advisors on multiple occasions to explore these risks. However, it became clear the proposed transaction likely would take more than a year to even determine if, and on what terms, it could clear antitrust review, and Choice was unable to address these long-term risks to Wyndham’s business and shareholders,” Holmes said.

“We are disappointed that Choice’s description of our engagement disingenuously suggests that we were in alignment on core terms and omits to describe the true reasons we have consistently questioned the merits of this combination – Choice’s inability and unwillingness to address our significant concerns about regulatory and execution risk and our deep concerns about the value of their stock,” he added.

Better together?

Considered the world’s largest hotel franchising company, Wyndham has 9,000 hotels across 95 countries on six continents. Its portfolio of 23 brands includes AmericInn, Super 8, Days Inn, La Quinta, Hawthorn Suites, Trademark Collection and Wyndham.

Choice Hotels – which owns chains such as Econo Lodge, Quality Inn and Clarion – has about 7,500 hotels in 46 countries and territories. Choice has turned to acquisitions in recent years amid challenges when it comes to unit growth, according to Reuters. 

In his Tuesday statement, Pacious remarked, “We have long respected Wyndham’s business and are confident that this combination would significantly accelerate both Choice’s and Wyndham’s long-term organic growth strategy for the benefit of all stakeholders.”

“For franchisees, the transaction would bring Choice’s proven franchisee success system to a broader set of owners, enabling them to benefit from Choice’s world-class reservation platform and proprietary technology to drive cost savings and greater investment returns. Additionally, the value-driven leisure and business traveler would benefit from the combined company’s rewards program, which would be on par with the top two global hotel rewards programs, enabling them to receive greater value and access to a broader selection of options across stay occasions and price points,” he said.

According to Choice, the tie-up could help the companies better compete for franchisees against larger industry players, like Marriott International Inc. and Hilton Worldwide Holdings Inc., as well as generate $150 million in cost savings and “topline growth potential.”