Shares of Wyndham Hotels & Resorts (WH -2.08%) were up 11% as of 10:27 a.m. ET on Tuesday. The stock jumped following another acquisition proposal by Choice Hotels International for $90 per share in cash and stock.
Previous offers by Choice were rejected by Wyndham, but will the latest proposal prevail? Slow revenue growth has kept Wyndham shares in check over the last few years. The shares are currently up 7% year to date.
Why is Choice interested in Wyndham?
The hotel industry is highly fragmented, which has spurred merger and acquisition activity in recent years. To deliver better growth for investors, hotel brands are looking to merge with other hotel operators to expand their customer base, hotel offerings, and loyalty programs, and lower costs to achieve higher profits.
The two companies are almost equal. Wyndham generated $1.4 billion in revenue on a trailing-12-month basis, with $294 million in net profit, while Choice generated $1.5 billion in revenue and $296 million in profit.
However, Wyndham operates a larger base of 9,100 hotels, including Days Inn, Howard Johnson, and La Quinta. Choice has smaller base of 7,500 hotels.
Choice believes the combination of the two will achieve greater returns and deliver better value options for travelers. The company says cost savings could be approximately $150 million annually while revenue growth could accelerate.
Will Wyndham shareholders accept?
It seems a good time to go forward with an acquisition, especially given Choice's pitch that the companies would be able to deliver better value in this time of inflation while achieving more profitable growth for shareholders.
Wyndham has been reluctant to go forward, so Choice will have to make a strong pitch to Wyndham's shareholders.
