Wyndham Earnings: Merger With Choice Remains Uncertain, but Development Continues to Rise

With Wyndham's third-quarter results coming in largely as planned, the focus turned to Choice's unsolicited bid for the company. While we believe the combined company would yield scale benefits, we continue to see hurdles to the deal ultimately being approved by shareholders and the Federal Trade Commission, as outlined in our Oct. 18 note and supported by Wyndham's Oct. 26 presentation. Namely, we think the over 50% economy/midscale brand share of a merged entity could lead to a delayed review period (which Wyndham claims could take 12-18 months) and impact development for either company. Also, having 40%-45% of the offer tied to Choice's share price adds an element of uncertainty on the ultimate transaction price; already, the $90 per share offer price made public mid-October has dropped to around $86 due to the decline in Choice's stock price to about $113.