Wyndham Worldwide Corporation's (WYN) Vacation Ownership business recently took over privately held Shell Vacations LLC (Shell) and its subsidiaries for $102 million in cash. The deal affirms management’s intent to solidify its presence in the domestic vacation ownership business. However, the acquisition assumes $153 million of Shell’s debt.
Per the deal, Wyndham Vacation Ownership (:WVO) will be in charge of the property management operations at 19 Shell resort locations spread across Hawaii, California, Arizona, Nevada, Oregon, Wisconsin, Texas, New Hampshire and Canada.
The deal also paves the way for WVO to operate Shell Vacations Club (:SVC) — a renowned points-based reservation and exchange system offering various benefits and travel options to members.
Wyndham is a dominant player in the vacation ownership business and seeks further inorganic growth. Under the Vacation Ownership business it develops, markets and sells vacation ownership interests as well as provides consumer financing to owners via its network of over 160 vacation ownership resorts serving over 813,000 owners throughout North America, the Caribbean and the South Pacific.
This fee-for-service business reduces the capital requirement, resulting in a higher free cash flow. Management at Wyndham believes that this latest bolt-on acquisition will be accretive to earnings instantly and will aid cash flow generation. The deal is in sync with Wyndham’s strategy to grow through geographical diversification in the domestic arena.
We view the recent deal as strategically positive. While Shell will enjoy the much higher scale of WVO business, Wyndham will benefit from Shell Vacations’ rich positioning in the hospitality industry over more than four decades. Further, its extremely popular vacation club providing almost unmatchable customer satisfaction makes it a lucrative target for acquisition.
We believe that Wyndham’s repositioning as a more fee-for-service based business will benefit it over the long term. Wyndham, which competes with the likes of Marriott Vacations Worldwide Corp. (VAC), currently carries a Zacks #3 Rank that translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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