Rent-A-Center Receives A Bid From A Familiar Source

Rent-A-Center Inc RCII shares are higher on news it has received a buyout offer, valuing it at $13 per share. This represents a 31 percent premium over the $9.92 price the stock closed on Thursday.

The furniture and electronics rent-to-own company confirmed it received an offer from Vintage Capital Management to acquire all of its outstanding shares at $13 per share in cash, a scale back from an earlier offer it had made.

The company said its board will review and consider all options before it from the point of maximizing shareholder value.

At this time, the company requested its shareholders not to take any action.

Multiple Interests In The Company

Rent-A-Center has been pressured ever since activist hedge fund Engaged Capital managed to wrest three board seats for its nominees in June. The fund owns about 16.9 percent stake in the company and has been breathing down its neck to explore a sale.

This came as a blow to the company, which had embarked on a three-year turnaround plan in April, aimed at improving technology, increasing focus on high-end items, and offering financing to increase ownership.

See Also: 3 Factors Stacking Up Against Rent-A-Center

Earlier in April, Marcato Capital had also urged the company to explore a sale of the company.

Meanwhile, private-equity Vintage Capital approached Rent-A-Center in June regarding a buyout bid for $15 per share or $600 million in total. The company rejected the bid on July 5, stating that the offer is inadequate and opportunistic.

Subsequently, on Oct. 30, the company announced its board has initiated a process to explore strategic and financial alternatives.

Analyst's Take

Loop Capital Markets' analyst Anthony Chukumba noted that Vintage Capital said in a 13-D filing that it has acquired a 5.9 percent stake in Rent-A-Center and has made an offer for it.

Pointing to an unusual provision, the analyst said, Vintage Capital had hinged the value it is willing to pay and its interest in pursuing the transaction on whether or not potential rival bidders have privy to the company's assets.

Though Vintage Capital is yet to secure financing for the deal, it suggested it can complete due diligence, obtain financing commitments and execute a definite transaction agreement within 30 days of gaining access to due diligence information.

Loop Capital Markets said Vintage Capital has extensive rent-to-own industry experience, with ownership interest in Aaron's, Inc. AAN. Vintage also owns Buddy's Home Furnishings, the third largest rent-to-own retailer in the U.S.

As such, the firm maintained its Sell rating and $8 price target, despite the second offer from Vintage Capital. The firm believes the pre-condition Vintage Capital has laid down regarding non-disclosure of information to competing bidders is a deterrent, preventing Rent-A-Center's board from discharging its fiduciary duties.

Additionally, the firm is skeptical how Vintage Capital can mobilize financing for the deal, given its already high leverage and the recent spate of retail bankruptcies.

Image credit: Mike Mozart, Flickr