Shareholders demand Rent-A-Center sell itself

Dive Brief:

Activist investment firm Marcato Capital Management urged Rent-A-Center's board of directors on Tuesday to sell the company, supporting a similar stance from hedge fund Engaged Capital, which has been pushing the rent-to-own retailer to consider offers for months. Marcato warned that the company is “brazenly ignoring the will of the shareholders," according to a report from Reuters.
Engaged Capital and Marcato each sent letters to Rent-A-Center's board of directors to voice their complaints Tuesday. Marcato reportedly told the board to consider offers seriously, which could raise its selling price. Engaged Capital, meanwhile, issued a statement Tuesday saying they were “outraged" to learn that the company had received takeover interest from two other private equity firms without alerting shareholders.
Rent-A-Center reportedly spurned private equity firms HIG Capital and Lone Star Funds before declining an $800 million offer from private equity firm Vintage Capital this month, Reuters reports. In an email to Retail Dive Wednesday, a Rent-A-Center spokesperson said: "The Board remains open-minded and regularly reviews the company’s strategic priorities and opportunities, and is committed to maximizing value for stockholders. Today, the Rent-A-Center Board and management team are expeditiously executing the company’s strategic plan to restore growth and improve profitability."

Dive Insight:

In March, Rent-A-Center announced its board of directors had unanimously adopted a stockholder rights plan, also known as a “poison pill,” which would 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 followed pressure from 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 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 in that letter detailed other problematic setbacks and criticized the abrupt departure days earlier of Rent-A-Center CFO Guy Constant.

The pressure has only intensified since. While 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 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.