Media recently reported a potential merger between Choice Hotels and Wyndham Hotels & Resorts. While the two parties are not currently engaged in serious talks, the news has generated interest and speculation among industry observers. We see this transaction as unlikely for several reasons, the primary of which is that this doesn’t seem to be value creating for Choice shares, Choice does not have enough cash to support the transaction, and the high cost of capital in today’s market.
The potential merger holds strategic merits, such as gaining size and scale for Choice Hotels and acquiring a development pipeline. However, we have not seen analysis demonstrating the financial benefits for Choice Hotels, primarily the ability to achieve earnings-per-share accretion. Timing and integration challenges may arise for Choice Hotels, which is currently integrating the Radisson Brand that was purchased in August of 2022.
