Dive Brief:
- Rent-A-Center is exploring its strategic and financial alternatives, including a possible sale of the company, the rent-to-own retailer said in a press release. Until the process is complete, the retailer said it is suspending its stock dividend payouts and will not be commenting on details.
- The announcement follows activist pressure from multiple hedge funds that have called on the company to sell itself. Rent-A-Center reportedly declined buyout offers from a handful of private equity firms this year, including an $800 million offer from private equity firm Vintage Capital in June.
- Engaged Capital, one of the activist funds with a stake in Rent-A-Center, commended the board in a press release Monday for "initiating a long overdue strategic alternatives review process to unlock value for all stockholders." According to the hedge fund’s calculations, an acquirer of Rent-A-Center could "realize $300 million or more of synergies and operational improvements."
Dive Insight:
In March, Rent-A-Center announced the board of directors had unanimously adopted a stockholder rights plan, also known as a "poison pill," which would be activated once any one investor’s stake exceeds 15%. The move dilutes shares once the "pill" is triggered, making it more expensive for a major shareholder to increase their stake.
The move follows pressure from Engaged Capital, which disclosed a 12.9% stake in February in a letter that also accused the Rent-A-Center board of being "asleep at the wheel" and urged a sale of the furniture and electronics rent-to-own company. Later in the month, the hedge fund nominated five people for three open positions on the board of directors.
Glenn Welling, Engaged Capital's founder and chief investment officer, wrote the board a private letter in December, saying Rent-A-Center’s chief differentiator — its rent-to-own business — helped make the company "Amazon-proof," but that its reputation for predatory lending practices is an Achilles heel. Welling also detailed other problematic setbacks and criticized the abrupt departure days earlier of Rent-A-Center CFO Guy Constant.
The pressure has only intensified since. The company has been in turmoil, with Constant's exit quickly followed by the January resignation of CEO Robert Davis, who took over from founder Mark Speese in early 2014. Speese returned in April, about the time the retailer appeared on a Moody’s Investors Service report that it was among the specialty retailers that would help drag down operating profit in the sector this year.
Rent-A-Center has tried to improve long-term performance in part by adding more full-time employees, shifting its product mix to include more "aspirational" products, and "streamlining" the collections process for delinquent payments, according to the company’s most recent 10-K.
The company, with more than 4,700 stores, reported $3 billion in sales last year, down from $3.3 billion in 2015. It also posted a loss of $105.2 million last year, a narrowing of the nearly $1 billion loss in 2015, but well short of the $100 million-plus profits it raked in just a few years ago.
