Caving to pressure from investors, Rent-A-Center Inc. (RCII, Financial) announced on Monday it is being acquired by Vintage Capital Management, sending shares higher.
According to the terms of the deal, Orlando-based Vintage will pay $15 per share in cash for the Plano, Texas-based rent-to-own retailer, a 49% premium to the stock’s closing price on Oct. 30, 2017. The total deal, including debt, is valued at approximately $1.37 billion.
Following the announcement, the stock jumped 22% on Monday morning.
The deal is coming at a good time. Rent-A-Center, which went public in 1995, has been struggling in recent years as its revenue has steadily declined, falling from $3.3 billion in 2015 to $2.7 billion in 2017.
Its earnings have also suffered over the past several years, recovering from a loss of $17.97 per share in 2015 to earnings of 12 cents per share in 2017.
Over the past several months, the company has worked to identify areas where it could cut costs and improve performance. For instance, in March, Rent-A-Center announced it was reducing its corporate staff by 25%, or 250 positions, to generate around $28 million in cost savings.
The deal with Vintage appears to be another step in the process as it disclosed at that time it was also reviewing buyout offers. CNBC reported that one of Rent-A-Center’s largest shareholders, Engaged Capital, has been pushing for a sale.
According to CEO Mitch Fadel, the deal will “maximize value” for shareholders and deliver “a significant and immediate cash premium.”
“Today’s exciting announcement reflects the significant progress we have made to materially improve our performance and would not have been possible without the hard work and focus of our talented co-workers over the last several months,” he said. “Vintage is a natural partner for Rent-A-Center given its deep knowledge of the rent-to-own industry, and we look forward to partnering with them to realize the full benefits of the transaction."
The deal is expected to close by the end of the year, at which time Rent-A-Center will become a private company.
With a market cap of $785.19 million, Rent-A-Center was trading around $14.68 on Monday afternoon with a price-book ratio of 3.06 and a price-sales ratio of 0.30. GuruFocus estimates the stock has climbed approximately 40% year to date.
Of the gurus invested in Rent-A-Center, Charles Brandes (Trades, Portfolio) has the largest position with 3.49% of outstanding shares. Hotchkis & Wiley, Chuck Royce (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) are also shareholders.
Disclosure: No positions.
