Gone With The Wynd! Wyndham To Separate Its Timeshare Business

Following the lead of many of its peers, Wyndham Worldwide (WYN) announced that it would spin off its timeshare business into a standalone entity. The new timeshare company will become the largest timeshare company in the world (at least by revenues – $3.4b) and include both Wyndham Vacation Ownership and RCI, a timeshare exchange program. The hotel company generated ~$1.3b in revenue and has a global portfolio will over 8,100 hotels and ~705,700 rooms. A key part of this deal is that both companies will sign long term agreements with loyalty program Wyndham Rewards, which many currently love for its flat 15K points per night redemption rate.

According to CEO & Chairman Stephen Holmes, the spinoff came about ‘after a comprehensive review process’ whereby ‘the Board of Directors has determined that a spin-off of the hotel business and the combination of Wyndham Vacation Ownership with RCI is the best structure to unlock shareholder value and enable strong growth across the businesses’. In addition to allowing the companies to ‘focus’ on their respective segments, the WSJ noted that a ‘sum of the parts’ valuation was also a motivating factor behind the breakup:

Stephen P. Holmes, Wyndham’s chairman and chief executive, said in an interview that the deal will allow both companies to better focus on growth strategies, including mergers and acquisitions, in distinct segments of the lodging industry.

“When you look at the way analysts talk about us, you’d see that quite a few of them look at the sum of the parts,” he said. “They say ‘OK, if these businesses were valued as independent businesses, the stock would be worth more.’

Hmmmm…I think we have heard that story before. Maybe it was when Marriott (MAR) spun off its timeshare business, Marriott Vacations Worldwide (VAC)? Or was it when Starwood Hotels spun off its timeshare business Vistana (which ultimately merged via Reverse Morris Trust with ILG)? Perhaps it was Hilton’s double spin earlier this year including its timeshare business, Hilton Grand Vacations (HGV)? The likely answer is it was all three. Here is what some peer trading valuations stats and spinoff performance data look like:

Company Name	Ticker	TEV/EBITDA (LTM)	P/E (LTM)	LTM EBITDA %		Spin Date	Return
Marriott Vacations Worldwide	VAC	13.8x	20.0x	19.7%		11/21/2011	556%
ILG	ILG	13.1x	25.5x	23.5%		5/12/2016	90%
Hilton Grand Vacations	HGV	11.5x	19.9x	25.1%		1/3/2017	41%

Source: CapIQ

All three have outperformed the S&P 500 over their respective lives so I guess it’s worked. It’s no surprise then that Wyndham dialed up the same old playbook and is joining the pack. Often there are activists involved in these ‘playbook’ deals, but a quick look at the top holders reveals mostly ETFs (although Elliott does own <1%). There is at least one activist currently ‘active’ in the space – FrontFour Capital wants to see some consolidation in the timeshare industry and is pushing ILG to sell itself to VAC or HGV. In any case, WYN’s current shareholders seemed happy enough and the stock popped over 4% on the spinoff announcement.

The spinoff will also usher in a period of new leadership at Wyndham. Mr. Holmes will become the Non-Executive Chairman of both companies and the current operating CEOs will helm their respective new public companies post-spin. That means Geoff Ballotti, current CEO of Wyndham Hotel Group, will be CEO (and President) of the hotel company and Michael Brown, current CEO of Wyndham Vacation Ownership, will become CEO (and President) of the timeshare company. In fact, the recent hiring of Mr. Brown, a veteran of Hilton’s spinoff, sent a strong signal to the markets that a spinoff was in the cards. With current CFO Tom Conforti moving into an advisory role, David Wyshner will become WYN’s CFO and eventually assume that role at the hotel company. Michael Hug will serve as CFO of the timeshare company.

The tax free transaction is expected to be completed in the first half of 2018 and it’s worth noting that it will not include Wyndham’s European vacation rental business. According to Mr. Holmes it wasn’t a ‘natural fit’ for either company, so the company is exploring a different set of ‘strategic alternatives’ for that unit.

Personally, I am always amazed at how large and successful these timeshare companies are. I know there are some big supporters, such as the The Timeshare Guru (big surprise there), but my parents always told me that timeshares are for suckers and warned me to be wary of their ‘hard sale’ tactics. The plethora of people listing theirs for $1 in order to get out would seem to support that idea, but I am open to hearing the other side.

Disclosure: Author holds no position in any stock mentioned, but has rented timeshares for some glorious vacations.