Many years ago, worked for a hotel which had a great location but was part of a small chain, a few years later, the contract was not renewed and became a Ramada. The profitability of the hotel increased, because it was linked to a reservation system and people knew the name. The reality is most hotels are owned a one chain or another and there is value in having many franchise hotels.

In an article by Michelle Chapman of the Associated Press, Choice Hotels International launched a hostile takeover of Wyndham Hotels and Resorts. If you do not know Wyndham you may know some of their franchises – Days Inn, LaQuinta, Ramada and 21 other brands encompassing 95 countries and over 9,000 locations, in addition to the reward card if you are a frequent traveler. Choice Hotels includes Radisson, Clarion and EconoLodge and Rodeway.

Choice Hotels has offered $49.50 in cash and 0.324 shares of Choice which is worth about $90 a share or a total of about $8 billion. Choice’s CEO Patrick Pacious said he would prefer a negotiated outcome, and a mutually agreeable outcome. Choice is willing to offer 2 seats of the Board of Directors. Choice presently owns 1.5 million Wyndham shares.

Wyndham Chairman Stephen Holmes said the offer was too low and it undervalued Wyndham’s growth potential.

Linking to dividend paying stocks, when a company does a merger or wants to do a merger, if the merger is not quick, it will consume more time of the senior executives in the company. They will spend more time which translates into offering more money and often there is no willingness to walk away. The more money which is offered changes the rational and potential profitability of the deal because of debt or higher interest payments. This means everything to create synergies has to work near expectations including sales of potential assets. Unless you believe the two companies are really great cash cows, it is generally better to move to alternatives.

There are more questions than answers, till the next time – to raising questions.