Wyndham franchisees question possible Choice merger, association says

By Doyinsola Oladipo

NEW YORK (Reuters) - A major U.S. hotel owners association said its Wyndham Hotels & Resorts (NYSE:WH) franchisee members are worried an acquisition by budget operator Choice Hotels (NYSE:CHH) International could hurt their business.

Choice on Tuesday launched a hostile bid for Wyndham to bring Wyndham to the negotiating table. The deal, initially valued at $7.8 billion, would combine two of the biggest U.S. budget operators at a time when demand for cheaper extended stay brands is growing rapidly.

Wyndham owners have several worries, said Laura Lee Blake, chief executive of the Asian American Hotel Owners Association (AAHOA) which represents nearly 20,000 members who own about 60% of the hotels in the United States.

The AAHOA surveyed 1,000 of its members to gauge sentiment on the potential merger. About 80% of Wyndham franchisee respondents said a tie-up would hurt their business and about 60% said they would terminate their contract in the event of a merger if they had the option.

Wyndham did not respond to a request for comment.

Blake said many AAHOA members saw revenue fall after previous mergers, including the 2018 combination of Wyndham and La Quinta and Choice's acquisition of Radisson Hotels Americas in 2022. Members are also worried about increased fees and brand dilution, she said.

"When you sign a 20-year franchise agreement, you are anticipating that you're going to be with this brand for the next 20 years and if you're unhappy with the brand or a merger like this occurs, you cannot just change your mind," Blake said.

A combined company would have 16,500 hotels across 46 brands, many operating economy hotels within the limited service segment, she said.

Historically, about 5% of franchisee owners leave a brand after a merger or acquisition, said Patrick Scholes, Truist equity analyst. The survey is "probably reflective of Wyndham's management being really aggressive to get the word out there that they don't see it as a good deal."

Choice said the merger will reduce costs and boost revenues for franchisees. It said it plans to address franchisee concerns including decreasing reliance on online travel agencies for bookings and lowering operating costs.

"Our discussions with a number of our franchisee advisory councils have shown that franchisees are eager for the upside the combination would bring," said a Choice spokesperson.

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Roughly 70 million to 80 million Americans are economy travelers. Recently, giants Hilton and Marriott have introduced economy offerings.

Eight of the first 20 Hilton economy hotels, named Spark, converted from a Choice brand, said Richard Clarke, Bernstein equity analyst. That may be adding pressure to Choice to make a deal, he said.