Choice Hotels: Hostile Wyndham Bid Stands to Lift Competitive Position, but Upscale Still Lacking

We think narrow-moat Choice’s hostile bid for narrow-moat Wyndham would, if completed, make a combined entity more competitive than each of them is on a stand-alone basis as scale entices both third-party owners and travelers to join operator ecosystems in the hotel industry. To this point, a combined company would double its revenue share to around 4%, according to Euromonitor, matching number-three player narrow-moat InterContinental, or IC, while still trailing narrow-moat companies Hilton and Marriott. Further, it would expand Choice’s room base to over 1.4 million from more than 600,000, making it second only to Marriott’s 1.6 million. It would also combine Wyndham’s more than 100 million loyalty members with Choice’s 60 million, getting it closer to industry leader Marriott’s 186 million. As a result, a merged entity would be able to offer owners increased procurement, distribution, loyalty, and reservation advantages, while travelers would have more hotel choice.