By Anirban Sen and Kannaki Deka
(Reuters) -Choice Hotels International is seeking to buy Wyndham Hotels & Resorts in a deal that would create a U.S. budget hotel giant, a person familiar with the matter told Reuters on Tuesday.
The talks between the companies are at an early stage and it is not clear whether Wyndham is interested in pursuing a tie-up with Choice, the source said, requesting anonymity as these discussions are confidential.
If Wyndham decides not to proceed with a deal, Choice Hotels could choose to go hostile and take an offer directly to Wyndham's shareholders, the source said.
News of the potential deal comes at a time when high inflation and recession risks could sap consumer spending on travel and drive up demand for affordable hotels such as Choice and Wyndham.
The news was first reported by the Wall Street Journal on Tuesday, after which shares of Wyndham Hotels closed 5.1% higher, while Choice Hotels ended about 4.6% lower.
"We don't comment on rumors. We are focused on business as usual, driving value for our franchisees, team members, guests and stakeholders," Wyndham said in an emailed statement.
Wyndham had a market value of $5.9 billion as of Monday's close, while Choice has a market capitalization of $5.8 billion. Wyndham, whose brands include Days Inn and Travelodge, operates and franchises a hotel portfolio of 24 brands that are primarily located in secondary and tertiary cities, according to its annual filing.
Wyndham was formed in 2018. Wyndham Worldwide spun off its $11 billion hotel business to create two separate publicly-traded hospitality companies. Wyndham Worldwide is now known as Travel + Leisure and focuses on timeshare resorts.
Choice Hotels, which operates brands like Econo Lodge, Quality Inn and Clarion, franchises more than 7,000 hotels and caters to customers in the mid-scale to upscale range.
The company did not immediately respond to a request for comment.
(Reporting by Kannaki Deka and Sourasis Bose in Bengaluru and Anirban Sen in New York; Editing by Devika Syamnath and Bill Berkrot)