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Budget extended stay hotels emerged as one of the few bright spots for the lodging industry during the pandemic. These chains benefited from the need for temporary housing for essential workers as well as staycationers who wanted to practice social distancing.
Post-pandemic, demand for these no-frill rooms shows no sign of fading. That is thanks to the rise of “bleisure” travellers. The word — a blend of business and leisure — describes workers who take advantage of remote work policies to combine their business assignments with vacation time.
The sector’s resilience explains why Choice Hotels International is looking to check into rival Wyndham Hotels and Resorts.
Choice, whose brands include Quality Inn, Econo Lodge, Clarion and Comfort, has made its $9.8bn buyout offer, including debt, for Wyndham public after the latter walked away following six months of merger talks.
It is an opportunistic move. Choice’s $90 cash and stock offer values Wyndham’s equity at $7.8bn. That is a 22 per cent premium to the shares’ undisturbed three month average. But it looks less impressive considering Wyndham traded at over $90 a share just 18 months ago.
A combination of Choice and Wyndham would create one of the biggest hotel operators in the world, with over 16,600 hotels and nearly 1.5mn rooms. While both companies primarily cater to the budget extended stay market, Wyndham also has exposure to the mid-market, a segment Choice is targeting.
Yet Choice’s offer — 55 per cent in cash and 45 per cent in stock — would value Wyndham at just around 15 times EV/ebitda. That is in line with Choice and Marriott International.
Wyndham’s management is right to play hard to get. Any deal would probably attract antitrust scrutiny. Wyndham may be looking to be better compensated for taking on this risk.
Choice will need to provide an extra tip to get Wyndham shareholders on its side. It may want to start by increasing the cash component.
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