Rent-A-Center (RCII 12.32, +1.22), which leases household durable goods to customers on a rent-to-own basis, is engaged in a restructuring effort that its Board of Directors believes will deliver great value to the company's shareholders. The 11% gain in the stock today, however, has nothing to do with the fruits of those efforts. Instead, it is the byproduct of a takeover offer the company received... and summarily rejected.
The offer was reported by Rent-A-Center in an 8-K filing with the SEC in which the company indicated Vintage Capital Management made an unsolicited proposal on June 20, 2017, to acquire 100% of Rent-A-Center's common stock in a go-private transaction for $15.00 per share.
The filing also disclosed that Rent-A-Center's Board of Directors rejected Vintage's offer on July 5, 2017, following a thorough review by the board and its financial and legal advisors. The basis for the rejection was the determination that Vintage's proposal "significantly undervalues" the company and that greater value will ultimately accrue to shareholders as Rent-A-Center's strategic plan unfolds.
The aforementioned plan includes a renewed focus on strengthening the company's core U.S. business; optimizing and growing its Acceptance Now business; and leveraging technology investments to expand distribution channels and integrate retail and online offerings.
Rent-A-Center's Board of Directors had been engaged in a bitter dispute with activist investor Engaged Capital about the company's approach to doing business. Engaged Capital, which owned 16.9% of the outstanding stock as of June 19 and is the company's largest shareholder, successfully managed to have three of its nominees elected to Rent-A-Center's Board of Directors.
The takeover proposal from Vintage represented a 35.1% premium over RCII's closing price on Monday. That certainly sounds like a healthy premium, yet Rent-A-Center decried it as an opportunistic proposal. It is easy to understand why.
Shares of RCII were trading north of $40.00 per share less than four years ago, so while $15.00 looks good relative to Monday's closing price, it is a long way still from being an actual premium over where many investors have purchased the stock over the course of the last 16 years.