Wyndham Hotels & Resorts (NYSE:WH) rejected a $7.8 billion acquisition offer from Choice Hotels International (NYSE:NYSE:CHH) on Tuesday, following a six-month negotiation period. The proposed deal, which would have valued Wyndham at about $9.8 billion including net debt, was deemed undervalued by Wyndham's executives, who expressed concerns about the Choice’s stock incorporated in the deal.
According to InvestingPro data, Wyndham has a market capitalization of $6250M and a P/E ratio of 21.88, which is considered relatively high, indicating that the company's shares might be overvalued. The company's gross profit margin stands at an impressive 66.89%, which is a testament to its financial health and efficiency. InvestingPro Tips also suggests that Wyndham's management has been aggressively buying back shares, further indicating their confidence in the company's value.
The bid included a mix of cash and stock, offering Wyndham shareholders $49.50 in cash and 0.324 shares of Choice common stock for each owned Wyndham share. This deal represented a 26% premium over recent share prices, an 11% premium to its 52-week high, and a 30% premium to its latest closing price, as reported by The Wall Street Journal.
The proposed structure also included a mechanism that gave shareholders the option to choose between cash, stock, or both, subject to proration. Wyndham's executives believed it undervalued their company, even though the offer was quite attractive.
The announcement of the bid by Choice Hotels led to a significant surge in Wyndham's stock price on Tuesday. Wyndham shares saw a premarket gain of over 20%, and were up 10.38% at 11:28 a.m., while Choice Hotels' stock was down 4.70%. InvestingPro data shows that Choice Hotels has a market cap of $5890M and a P/E ratio of 21.01. The company's gross profit margin is a staggering 91.46%, which is one of the highest in the industry, according to InvestingPro Tips.
Choice Hotels' CEO, Patrick Pacious, expressed disappointment over the halted discussions but remained hopeful about potential benefits for stakeholders from both sides. With Choice Hotels maintaining dividend payments for 20 consecutive years, according to InvestingPro Tips, the potential merger could have been a lucrative deal for shareholders.
Negotiations between the two companies had been ongoing since April before coming to a halt recently. Despite the rejection of the initial offer, it remains uncertain if further negotiations will take place. As the situation develops, investors are keeping a close eye on both companies, using tools like InvestingPro to stay informed and make sound investment decisions.
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