Wyndham Worldwide Likely To Spin-Off Its Vacation Ownership Business

Deal Overview

On April 26 2017, during 1Q17 earnings call, Wyndham Worldwide WYN +0.74%, CEO Steve Holmes discussed steps the company is taking toward a possible spin-off of its vacation ownership business, including the hiring of Mr. Mike Brown, a hotel industry veteran who was involved in a similar move by Hilton. Given the company’s relatively cheaper valuation versus the peers, the board of directors asked the company management to consider an option of separating the vacation ownership business. Mr. Brown was a COO of Hilton Grand Vacations while it was being spun off from Hilton and is expected to play a key role in the separation of Vacation Ownership Business at Wyndham. However, the company needs to have a clear strategy for its loyalty program (Wyndham Rewards) before the separation of the businesses. The loyalty program reportedly ties all three Wyndham’s business units together and it is a lot easier to implement the program as one company.

The company reported revenues of $1,319 million in 1Q17 compared to $1,303 million in 1Q16, while EBITDA was $ 266 million in 1Q17 compared to $267 million in 1Q16. Net income for the quarter was $141 million compared with $96 million in the prior year quarter. Diluted EPS came in at $1.33 compared with $0.84 for the prior year period. Wyndham reiterated its 2017 EBITDA outlook range of $1.41-1.44 billion as well as its 2017 revenue guidance of $5.80 -$5.95 billion.

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Deal Rationale

Apart from the loyalty program, there reportedly is no overlap amongst the three segments and the company doesn’t derive any incremental benefit of the three segments being together. Since, Wyndham’s spin-off from Cendant in August 2006, all the three businesses have grown in size and

can operate as an independent company. Given the apparent discount at which Wyndham trades versus the peers, the investor/analyst community has been asking to consider a separation to unlock shareholder value. With the successful recent spin-offs in lodging industry (Hilton Grand Vacations, Vistana), we believe now is the right time to separate the timeshare business. Moreover, the spin-off would create two separate businesses, enhancing the ability of each company to focus on their respective businesses and unique opportunities for long-term growth including tuck-in acquisitions. It will also allow investors to evaluate the separate investment identities of each company, including the distinct merits, performance and future prospects of their respective businesses.

Organization Pre & Post-Spin

Company Description

Wyndham Worldwide Corporation (Parent)

Incorporated on May 30, 2003, Wyndham Worldwide Corporation is a hospitality company. The Company offers a range of hospitality services and products through its global portfolio of brands. The Company operates through three segments: Wyndham Hotel Group, Wyndham Destination Network and Wyndham Vacation Ownership. In the Hotel group business, the company primarily franchises hotels and provides hotel management services for full-service and select limited-service hotels. The company’s Destination Network business provides vacation exchange services and products to owners of intervals of vacation ownership interests (“VOIs”) and manages and markets vacation rental properties primarily on behalf of independent owners while under Vacation Ownership business, Wyndham develops, markets and sells VOIs to individual consumers, provides consumer financing in connection with the sale of VOIs and provides property management services at resorts.

Wyndham Vacation Ownership (Spin-Off)

The Company’s Wyndham Vacation Ownership segment develops and acquires vacation ownership resorts; markets and sells vacation ownership interests (VOIs), provides consumer financing, and provides property management services to property owners’ associations. As of December 31, 2016, the Company had 219 vacation ownership resorts in the United States, Canada, Mexico, the Caribbean and the South Pacific. The company recorded revenues of $2,794 million (49% of total) and EBITDA of $694 million (48% of total) in Vacation Ownership business in FY16.

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Top 5 Shareholders

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Top 5 Shareholders

Joe Cornell CFA, author and founder of Spin-Off Research, an independent research boutique in Chicago focused solely on special situation investing in Spin-Offs.  Published since 1997.

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