Dive Brief:
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On Tuesday Rent-A-Center shareholders handily approved the retailer’s proposed merger with an affiliate of private equity firm Vintage Capital Management, according to a filing with the Securities and Exchange Commission.
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The shareholder decision comes days after Rent-A-Center and Vintage Capital Management said that Rent-A-Center and Vintage-owned Buddy’s Home Furnishings had each received a request for additional information and documents from the Federal Trade Commission as it conducts a competition review of Vintage's acquisition of Rent-A-Center, according to a press release from the companies.
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That extends the current waiting period imposed by law until 30 days after Rent-A-Center and Buddy’s have substantially complied with the request, according to the release. "Rent-A-Center and Buddy’s continue to cooperate fully with the FTC," they said in the release, adding that they expect the acquisition to close in the first quarter of 2019.
Dive Insight:
Rent-A-Center has already strengthened its financial footing in part by shuttering underperforming stores, and the FTC's second request may entail shuttering yet more, in light of antitrust concerns.
The rent-to-own retailer in June forged a deal with Vintage Capital to acquire it for about $1.37 billion including net debt. Its board and now shareholders have given the acquisition their thumbs up, so all that's left are regulatory approvals. But Vintage's ownership of rival rent-to-own business Buddy's complicates that.
Buddy’s Home Furnishings says it's the third largest rent-to-own retailer in the U.S., with more than 330 stores nationwide, according to the company's website. Rent-A-Center, meanwhile, owns and operates some 2,350 stores in the U.S., Mexico, Canada and Puerto Rico, about 1,250 "Acceptance Now" kiosks in the U.S. and Puerto Rico, according to a press release. Its Rent-A-Center Franchising International, Inc. subsidiary is a franchiser of another 250 rent-to-own stores operating under the trade names of "Rent-A-Center," "ColorTyme," and "RimTyme," the company said. While the companies haven't said how much their locations overlap, each has a large number of stores in several states, according to the Dallas Morning News.
Rent-A-Center's U.S. labor costs in the second quarter dropped by $5.8 million and other store expenses dropped $6.8 million, driven by lower store count, the company said in July. Net profit in the quarter reached $13.8 million, up from a net loss of $8.9 million in the year-ago period, and adjusted EBITDA expanded by 470 basis points year over year to $61.2 million.
If the proposed acquisition goes forward, the company's turnaround will shift, under cover of private ownership, as a wholly-owned subsidiary of Vintage. Rent-A-Center's shares of common stock would be delisted from NASDAQ and de-registered. With that, Rent-A-Center would join the ranks of private equity-owned retailers. That group now includes Staples, taken over and broken up by Sycamore Partners last year, and hardware retail co-op True Value. The list includes dozens of others, including some of those firms that fell into bankruptcy with debt from leveraged buyouts still on their books, such as Toys R Us, Nine West, Claire's Stores, Payless, Gymboree and more.
