Rent-A-Center squirrels away 'poison pill'

Dive Brief:

To discourage a takeover of the company, Rent-A-Center on Tuesday announced that its board of directors unanimously adopted a stockholder rights plan, also known as a “poison pill,” which could swing into place 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 its stake.
The move follows pressure from activist investor Engaged Capital, which disclosed a 12.9% stake in February in a letter in which it 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 to the board.
Glenn Welling, Engaged Capital's founder and chief investment officer, wrote the board a private letter in December in which he said that Rent-A-Center’s chief differentiator — its rent-to-own business — helped make the company “Amazon-proof,” yet was also an Achilles heel because of its reputation for predatory lending practices. Welling in that letter detailed other problematic setbacks and criticized the abrupt departure days earlier of Rent-A-Center CFO Guy Constant.

Dive Insight:

While hedge fund Engaged Capital appears to believe in the rent-to-own model, Rent-A-Center hasn’t been making it look good in recent months. 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 stepped back into the CEO spot while Rent-A-Center searches for a permanent replacement. But in a letter to the board in February, Welling questioned Speese’s combined roles of founder, interim CEO and chairman of the board.

“[W]e believe Mr. Speese’s multiple titles… make him vulnerable to conflicts of interest,” Welling wrote. “Further, we question whether the remaining six incumbent directors are truly independent. Do they have the freedom and courage to act in the best interest of shareholders even if that means potentially running afoul of Mr. Speese’s personal interests regarding the future of the company? We believe these concerns are well founded given that five of seven directors have been on the board for over ten years while two directors, including Mr. Speese, have been on the board for over 20 years.”

In February, Rent-A-Center reported that Q4 consolidated total revenues plunged 13.8% to $684.1 million and that same-store sales fell 9.6%, while core U.S. revenue in the quarter plummeted by 17.6% and that same-store sales dropped by 14.2%. At the time, Speese said that a number of factors led to the struggles, especially over the holidays, including snafus in its cash registers. “[T]he fourth quarter proved to be much more challenging than expected due to recovery challenges from the POS system outages in the previous quarter, heavy promotional activity, and historically high delinquencies,” he said in a statement.