Warren to FTC: Choice Hotels’ Hostile Takeover Attempt of Wyndham Would Raise Prices for Customers, Reduce Competition

Letter

Dear Chair Khan:
I am writing to express my concerns regarding the attempted hostile takeover of Wyndham Hotels
& Resorts (Wyndham) by Choice Hotels (Choice). The takeover would create the largest branded
hotel chain in the United States, giving one chain control over a huge portion of the hotel market.
Such a reduction in competition would harm entrepreneur franchisees and lead to higher hotel
rates for customers across the country. Accordingly, I urge the Federal Trade Commission (FTC)
to closely scrutinize Choice’s hostile takeover of Wyndham and oppose this deal if it violates
antitrust law.
Combination of Giants Choice and Wyndham Would Compound Consolidation in the Hotel
Industry
In October 2023, Choice made an unsolicited $8 billion buyout offer for Wyndham, which was
rejected by Wyndham — in part because of “regulatory and execution risk” related to antitrust
concerns.In the months since, Choice has taken steps towards an apparent hostile takeover of
Wyndham by directly approaching Wyndham stakeholders about the proposed deal, acquiring Wyndham shares in the open market, and preparing to nominate a slate of eight directors to replace Wyndham’s eight-member board. Wyndham has continued to oppose the attempted
takeover, warning of antitrust scrutiny given the significant anticipated market share of the
combined company. FTC is currently reviewing this proposal. Choice and Wyndham each boast a large portfolio of popular hotel chains across the United States. Choice and Wyndham each control close to 500,000 hotel rooms nationwide, most of which are in the economy and midscale markets. The dominance of Choice and Wyndham in these markets is not obvious to consumers, who interface with the companies’ large respective portfolios of hotel brands. Choice owns 22 hotel brands, including Radisson, Comfort, and Quality. Wyndham owns 24 hotel brands, including Ramada, Days Inn, and Super 8.Customers see the variety of different brands and believe they are making a meaningful choice between competing hotels, when they are in fact owned by the same company. If the hostile takeover of Wyndham succeeds, Choice would own 46 different hotel brands — creating a monopoly that can hide in plain sight.
Choice and Wyndham are two of the six companies — along with Marriott, Hilton,
InterContinental, and Best Western — that currently control approximately 80 percent of all
branded hotel rooms. The status quo is the result of years of consolidation in the industry. In the
last seven years, Choice and Wyndham have each grown their market dominance through
acquisitions. In 2018, Choice bought WoodSprings and its 240 hotels for $231 million. Just two
years ago, in 2022, Choice completed its high-profile acquisition of the Radisson hotel brand for
$675 million. In 2017, Wyndham acquired AmericInn for $170 million.
The merger of Choice and Wyndham would further consolidate the market and create the largest
branded hotel chain in the United States. The increased market dominance would be most
acutely felt in the economy and midscale markets. If Choice’s hostile takeover of Wyndham is
successful, data presented by Wyndham to its shareholders indicates that the combined company
would control 57 percent of the national market for economy hotel franchises, with its next largest
competitor controlling 14 percent of the market.The same data reveals that the combined
company would amass an even larger share of the national midscale hotel franchise market — a
staggering 67 percent.

Choice’s Hostile Takeover of Wyndham Would Presumptively Substantially Lessen Competition

Choice notified antitrust agencies of its intended transaction, under the Hart-Scott-Rodino (HSR)
Act pre-merger notification requirements for large transactions, on December 12, 2023. However, according to Wyndham, FTC had already launched an investigation of the potential deal
in November 2023, prior to Choice’s hostile offer. In January 2024, Wyndham confirmed receipt
of a “Second Request” for information from FTC, noting that only approximately 1 percent of
deals reviewed by FTC receive such a request. Choice also confirmed they are in the process of
complying with the FTC’s Second Request. Antitrust agencies may issue a Second Request after
preliminary review of a transaction when they need “more information to assess the proposed deal,” including regarding the likely competitive effects of the merger. Once Choice has
substantially complied with the Second Request, FTC would have 30 days to review the materials
and take action if necessary, including suing to block the transaction if FTC determines that the
transaction would violate antitrust laws.
The Merger Guidelines developed by FTC and DOJ note that “[m]arket concentration and the
change in concentration due to the merger are often useful indicators of a merger’s risk of
substantially lessening competition.” As noted above, per Wyndham’s data, if Choice’s takeover
succeeds, the combined entity would control 57 percent of the economy hotel market and 67
percent of the midscale hotel market nationwide. The economy hotel market and midscale hotel
market are already highly concentrated, according to FTC’s standards, reaching 2,343 and 2,877
respectively on the Herfindahl-Hirschman Index (HHI), and would rise to 3,591 and 5,011
respectively if this transaction proceeds, according to analysis provided by Wyndham. FTC and
DOJ’s Merger Guidelines characterize a change of more than 100 points as a “significant
increase” in market concentration. Antitrust agencies presume that a transaction that causes such a change in a highly concentrated market will “substantially lessen competition or tend to create a monopoly.” Transactions that result in a company with a market share greater than 30% and a
change of more than 100 HHI points are similarly presumed to substantially lessen competition or
tend to create a monopoly. Based on HHI market concentration, HHI change, and market share,
Choice’s takeover of Wyndham appears to substantially lessen competition or tend to create a
monopoly.

Section 7 of the Clayton Act prohibits mergers and acquisitions where “the effect of such
acquisition may be substantially to lessen competition, or to tend to create a monopoly.”36 As
such, and given the apparent presumption that this transaction would substantially lessen
competition or tend to create a monopoly, FTC should carefully examine Choice’s proposed
takeover and block it if it violates antitrust law.

Reduced Competition in the Hotel Industry Would Increase Costs for Franchisees and
Customers
Nearly 100% of Choice and Wyndham hotels operate as franchises, owned and run by
entrepreneur franchisees who usually own just a few hotels. Hotel franchisees receive benefits
from the brands’ recognized name, business plan, and “collective purchasing that is supposed to
give small businesses the benefits of scale.” In exchange, hotel franchisees pay a fee to join, as
well as ongoing royalties and marketing, technology, and consulting costs.

Robust competition in the hotel market means brands must compete against each other for the
consideration of franchisees, who may make their decision based on the fees and other costs that
the brands charge. Reduced competition from mergers would mean “fewer options and, thus, less
leverage to demand better services for a lower cost.” With profit margins becoming “thinner and
thinner,” it is highly likely that customers will end up bearing the brunt of reduced competition.
If the takeover of Wyndham is successful, Choice could use the reduced competition to raise
prices and increase their profits, all while using dozens of brands to hide the fact that customers
have fewer travel options. Choice could disguise their concentration of power behind their new
46-brand portfolio, giving customers the illusion of choice. Customers may assume that each of
these brands is competing for their hard-earned dollars by price and quality, when, in reality, they
are all owned by the same company. A rate increase within the midscale and economy markets
would necessarily lead to disproportionate harm to lower-income and younger customers, many of
whom already have limited choices for hotel and travel options that fit their budget.

I welcome FTC’s increased attention towards the franchise business model across industries,
including the Commission’s request for public comment on “how franchisors may exert control
over franchisees and their workers.” FTC is also developing a rule to ban employers from
imposing noncompete provisions on their workers which would potentially ban franchisors from
doing the same to their franchisees. This work is critical and will help protect workers and franchisees from being taken advantage of by large corporations. In addition, the Biden
administration has launched a whole-of-government effort to fight junk fees, in which FTC has
been an active participant. FTC’s proposed rule to ban junk fees stands to significantly benefit
hospitality industry customers, who currently may end up spending hundreds of extra dollars per
stay on resort fees. Consistent with FTC’s focus on protecting consumers, workers, and
franchisees, FTC should carefully consider the potential effect of Choice’s attempted takeover of
Wyndham on hotel costs and fees.

Conclusion
If Wyndham is acquired by Choice, it will significantly increase concentration in a market that is
already highly concentrated. The takeover has the potential to further entrench the largest
companies’ dominant positions in the hotel market. I am encouraged by FTC’s examination of the
transaction thus far and the Commission’s broader efforts to fight consolidation and protect
customers, workers, and franchisees. In line with these efforts, FTC should carefully scrutinize
Choice’s attempted takeover of Wyndham and block the takeover if it violates antitrust laws.

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