Wyndham Hotel Group and La Quinta Holdings CEOs talked with Hotel News Now about what the acquisition of La Quinta’s hotel franchise and management business will mean for the companies.
DALLAS—Wyndham Worldwide’s $1.95 billion acquisition of La Quinta Holding’s hotel franchise and management business, announced today, will serve to carve out a space in the upper midscale segment for Wyndham Hotel Group, said Geoff Ballotti, president and CEO of WHG.
Ballotti and La Quinta President and CEO Keith Cline spoke with Hotel News Now about the acquisition, which is expected to close in the second quarter, on a conference call from La Quinta’s headquarters in Dallas.
“I could not be more excited,” Ballotti said. “I’ve been so impressed with Keith and his team, who have built what is just an outstanding brand that’s so complementary to everything we’re doing. (Wyndham Hotel Group) is very present in the economy space, but doesn’t have a large presence in upper midscale, which is an area we want to grow in.”
According to STR’s chain-scale segments, Wyndham had five brands in the midscale segment prior to this deal—AmericInn (which it purchased in 2017), Baymont Inn & Suites, Hawthorn Suites by Wyndham, Ramada and Wingate by Wyndham. Its upper midscale brand, according to STR, is Wyndham Garden. STR classifies La Quinta Inn & Suites in the midscale segment. (STR is Hotel News Now’s parent company)
As of Q3 2017, Wyndham Hotel Group had 8,145 hotels and 708,545 guestrooms in its global portfolio, excluding the AmericInn properties, which added 200 hotels and nearly 12,000 rooms to Wyndham’s North American portfolio when the deal completed in October. As of that same time period, La Quinta had 894 hotels comprised of 87,800 guestrooms in operation.
Under the definitive agreement, Wyndham will acquire the La Quinta Inns & Suites brand, which will “immediately become one of our flagship brands,” Ballotti said, “with 900 hotels in the upper midscale space that will occupy part of the market that we’re just not present in today the way we want to be. The opportunities this presents for Wyndham from a growth standpoint are tremendous.”
The La Quinta acquisition also adds a franchise pipeline of 250 hotels, all with signed franchise agreements and 90% of which are new construction, to Wyndham’s portfolio, according to an SEC filing.
Wyndham will also take over management for La Quinta’s 300 managed hotels, which Ballotti said is another area that WHG was looking to grow in.
Cline said during the call that La Quinta and Wyndham are a good fit, because their shared strategies for “driving consistency in guest experience and engagement” dovetail nicely.
He also said that that timing of the acquisition is ideal, because it coincides with La Quinta’s spinoff of its owned real estate assets into CorePoint Lodging, which was announced a year ago almost to the day and is also expected to be completed in the second quarter. With the completion of that spinoff, Cline will become president and CEO of CorePoint Lodging.
“Obviously the separation of the fee-based business from the management business did generate some interest, … and makes it easier for something like this to occur,” Cline said.
“All along if something was going to happen transformational with the brand, it would always have to be the condition that the spinoff occur first.”
Wyndham’s own plans to spin off its timeshare business, allowing Wyndham Hotel Group to become a publicly traded pure-play hotel company, is still expected to close in the second quarter, and the La Quinta acquisition will have no effect on that, Ballotti said.
Loyalty and integration
As part of the deal, La Quinta’s loyalty program will be merged into Wyndham Rewards.
“We really are attracted to La Quinta’s loyalty program, and really impressed with everything they’re doing with that brand,” Ballotti said, adding that the merger into Wyndham Rewards will “provide just tremendous variety of choice” for guests.
“What they’re doing with Redeem Away is novel and innovative, and there’s a lot we can learn from the La Quinta brand as we work to integrate these two companies.”
Ballotti said that La Quinta’s headquarters will remain in Dallas, and “combining Wyndham’s team with La Quinta’s team will give us a much stronger presence” there.
“In announcing the deal today, we begin working immediately with Keith and his team on putting an integration team together that will look not only at loyalty but everything else we can bring to bear for owners and franchisees in terms of scale,” Ballotti said.
“From an operating standpoint, I think there are tremendous benefits in terms of scale for what we can do for owners to lower costs and drive more distribution, as well as a lot of benefits for consumers, not only through marketing but what we’re doing with partnerships and presenting La Quinta in a much larger platform. … This deal has to close … until then, it’s really just planning.”
As of press time, Wyndham Worldwide’s shares were trading at $123.73, up 6.8% year to date and up 5.6% since opening today. La Quinta’s shares were trading at $20.02, up 8.2% year to date and 3% since open. The Baird/STR Hotel Stock Index was up 1.9% for the same period.
The jump in stock price for the companies seems to coincide with a favorable market reaction to the deal.
C. Patrick Scholes, managing director of lodging and leisure equity research for SunTrust Robinson Humphrey, pointed out several positives about the deal in commentary sent to investors this morning. He pointed out a primary driver of the success of the deal are “the expected $55 million to $70 million in synergies” that will come through savings in costs related to public company expenses, technology, sales and marketing, and operating costs.
The transaction, which according to the news release has been approved by the boards of directors of both companies, is “subject to approval by La Quinta stockholders, regulatory and government approval and the satisfaction of other customary closing conditions.”
Under the announced deal, La Quinta shareholders would receive $8.40 per share in cash at closing, which amounts to roughly $1 billion. The $1.95 billion price tag also includes $715 million in debt Wyndham will repay on La Quinta’s behalf and $240 million in taxes related to the spinoff of CorePoint.
La Quinta’s 8K SEC filing states that the merger agreement contains “certain termination rights for both Wyndham Worldwide and La Quinta Holdings” if the merger doesn’t go through on or before 17 July 2018.
If the merger agreement is terminated for some reason, La Quinta would be required to pay Wyndham $37 million, according to the SEC filing.
Once La Quinta’s owned real estate assets are separated into CorePoint Lodging, CorePoint will pay La Quinta $983.9 million under the terms of the separation agreement.
Staff reporter Danielle Hess contributed to this report.