Alternative Hotels International (NYSE:CHH) canceled its bid to purchase rival Wyndham Hotels and Resorts (NYSE:WH) this week, walking away from negotiations which have turned hostile in recent months.
Investors seemed almost relieved on each side, because the stock prices for each corporations are up because the deal officially went belly up. Clearly, the overall sentiment appeared to be that it’s time to maneuver on.
Hostile takeover
The 2 lower-cost hotel chains had been in negotiations for nearly a yr, dating back to April 2023, but things just became public in October, when Alternative announced its bid to purchase the remaining Wyndham shares for $90 per share — 45% in stock and 55% in money. For Alternative, the thought was to create a reduction hotel behemoth to rival the large boys: Marriott (NASDAQ:MAR), Hilton (NYSE:HLT) and Hyatt (NYSE:H).
Nevertheless, Wyndham didn’t see it that way. The hotel chain’s board rejected the offer, calling it “underwhelming, highly conditional, and subject to significant business, regulatory and execution risk.”
Relations didn’t improve from there.
Alternative followed up in December with an exchange offer, making its case on to Wyndham shareholders in a proposal that might expire on March 8.
“The exchange offer provides Wyndham shareholders the chance to elect to receive the consideration in all money, all shares or a mix of money and shares, subject to a customary proration mechanism,” Alternative officials stated in a press release.
Wyndham responded a number of days later, recommending to shareholders that they reject the exchange offer on the identical grounds as before. The corporate said the offer undervalued its assets, faced an extended regulatory review, and was fraught with antitrust risks.
Alternative pulls the plug
Fast-forward to March 11, three days after the exchange offer expired, and Alternative has officially ended its bid to purchase Wyndham.
“While the support from Wyndham stockholders tendering into the exchange offer was significant considering the variety of investors structurally prevented from participating at this stage, it was not sufficient for Alternative to conclude — particularly when taking into consideration the Wyndham board’s obvious continuing disinterest in a mix — that a path towards a transaction is accessible at the moment,” officials said in an announcement.
Reuters reported that the exchange offer had the support of lower than 20% of Wyndham shareholders. Alternative also withdrew the slate of candidates it had nominated to serve on Wyndham’s board.
Wyndham Board Chair Stephen Holmes said the corporate is “pleased that Alternative has ended its hostile pursuit and proxy contest following the expiration of its unsolicited exchange offer.”
“We’re confident in Wyndham’s standalone strategy and growth prospects under the leadership of our proven management team,” he added.
The Federal Trade Commission (FTC) also expressed relief that the takeover attempt failed. The merger of two budget hotel brands would take one major competitor out of the combo, thus reducing competition.
“I’m pleased that Alternative Hotels International has abandoned its efforts to seize control of its rival Wyndham Hotels & Resorts,” said FTC Bureau of Competition Director Henry Liu. “The FTC was closely scrutinizing Alternative’s tender offer in addition to its efforts to switch the Wyndham Board of Directors with its own hand-picked slate of nominees. Each of those actions posed serious competition questions, and their abandonment is a win for consumers.”
Where do things go from here?
Wyndham clearly didn’t see value on this marriage from the beginning — at the least when it comes to the offer that was put forth — nor did its shareholders. The corporate’s stock price is up by about 5% since Monday morning, including a 1.5% jump on Tuesday, to around $79 per share.
Alternative stock spiked about 7% after hours on March 8 after the exchange offer expired, suggesting an indication of relief amongst Alternative shareholders that no deal was consummated. Since Monday, the corporate’s share price is down by about 3% to $126 per share, even though it’s still up since last Friday.
Of the 2 stocks, Wyndham appears to have more upside, with a forward price-to-earnings ratio of 18 that’s barely below Alternative’s 20 forward P/E ratio. Analysts also see more potential, because the consensus price goal for Wyndham is $90 per share, which can be 14% higher than the present share price. The median price goal for Alternative is $123, which can be a 3% drop from the present price.
Wyndham’s outlook for 2024 looks decent too, with revenue per available room (RevPAR) projected to extend by 2% to three% and overall revenue expected to rise by 4% to six% in fiscal 2024.
Alternative can definitely regroup and refocus after this strategic setback, but at this point, you possibly can see why it wanted a merger greater than Wyndham.