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Observers Say Blackstone Will Have No Problem Expanding
 Wyndham's Business through Franchise and Third-party
 Hotel Management Agreements
By Jordan Robertson, The Dallas Morning News
Knight Ridder/Tribune Business News

Jun. 15, 2005 - Troubled hotel operator Wyndham International agreed Tuesday to be sold for $3.24 billion to The Blackstone Group, a private equity firm that is on a cross-country, multibillion-dollar hotel-buying spree.

Dallas-based Wyndham said Tuesday that the New York equity firm will pay $1.15 in cash for each share of common stock and will take on $1.8 billion in debt as part of the purchase price.

Wyndham has hacked away at its nearly $4 billion in debt by selling off hundreds of hotels in recent years. Despite Wyndham's contraction, industry observers said Blackstone will have no problem expanding the hotel chain's respected brand through franchise and third-party hotel management agreements at a time the lodging industry is experiencing double-digit profit growth.

"Wyndham is a good, solid brand name," said Mark Woodworth, executive managing director of PKF Hospitality Research in Atlanta. "They're clearly a fraction of what they once were. But with this new backing, I would expect to see some very significant growth here."

Blackstone declined through a spokesman to comment on the transaction or the future of Wyndham's properties, saying it would be "imprudent" to comment before the deal closes in late fall.

But Wyndham spokeswoman Darcie Brossart said that no changes are yet planned for the company's Dallas hotels, which include the Wyndham Anatole on Stemmons Freeway and the Wyndham Garden Hotel on the LBJ Freeway.

"It's business as usual," said Ms. Brossart. "As far as the customer experience and how the properties are run, none of that changes at this point."

Wyndham has 145 branded hotels nationwide, 32 of which it owns outright, and the remainder of which are franchises or under management contracts.

The company has struggled with declining profits and has lost money in each of the last five years.

Since it recapitalized in 1999, it has sold 187 hotels for a total of $2.7 billion dollars, Ms. Brossart said.

Under the terms of the Blackstone merger, Wyndham's preferred stock shareholders will get $72.17 per share in cash.

Some observers point to the buyout firm's success following its recent string of hospitality plays -- including its 2004 acquisition of the Extended Stay America chain and the sale of its 143-unit AmeriSuites hotel chain to the Hyatt Corporation -- as evidence of its competency in the hospitality market.

"Not that I'm a cheerleader for Blackstone, but Blackstone clearly has a track record of understanding and succeeding with their investments in the lodging industry," said Mr. Woodworth, the hospitality researcher.

"Part of what they see in Wyndham has to include the Wyndham brand itself and taking ownership of that," he said. "I continue to believe that there is room in that three- to four-star segment of the marketplace for another brand, and I think Wyndham fills that niche."

"But for the last five, six, seven years," he said, "they've been impeded in their efforts to really capitalize on that opportunity because their balance sheet is all messed up."

The merger comes at a time of rapid growth in the lodging industry.

Industry profits are expected to grow nearly 25 percent this year to about $20.8 billion, according to a recent PricewaterhouseCoopers forecast.

And profits per available room are expected to jump 23 percent to $4,585, according to the report.

Jerry Merkin, publisher emeritus of the lodging industry trade publication Hotel Business, said many in the industry were surprised that Blackstone would pursue Wyndham.

He pointed to the firm's recent hotel buying spree, which also included an acquisition last month of the Rihga Royal hotel in Manhattan and of the exclusive Boca Resorts chain in Florida last year.

"Everyone figured that Blackstone seemed to have their hands full with recent acquisitions," Mr. Merkin said. "They had a lot on their plate, but they continue to be hungry to do things in this market. And for Blackstone, this is a very good thing. Wyndham resorts are world-class quality, there are a lot of good resorts in that package."

"And they can roll those resorts into the Boca program," he said, "and the value for that alone is worth the price they're paying for the whole Wyndham package."

Wyndham's stock closed up 15 cents, or 15.5 percent, to $1.12.


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