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Why Rent-A-Center Inc. Stock Popped Today

By Timothy Green - Jun 18, 2018 at 12:20PM

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The struggling rent-to-own retailer is being bought out.

What happened

Shares of rent-to-own retailer Rent-A-Center Inc. ( RCII 4.34% ) soared on Monday after the company agreed to be acquired for $15 per share. This comes less than a week after Rent-A-Center received a lower buyout offer following the completion of its strategic review. The stock was up about 22.2% at 11:30 a.m. EDT.

So what

Rent-A-Center has agreed to be acquired by Vintage Rodeo Parent LLC, an affiliate of Vintage Capital Management LLC, for $15 per share. The total transaction value is $1.365 billion, including debt. Vintage Capital offered $14 per share last week. That followed multiple offers in 2017, ranging from $13 to $15.

The exterior of a Rent-A-Center store.

Image source: Rent-A-Center.

Rent-A-Center is throwing in the towel as a public company after a long period of slumping margins and a declining stock price. The $15 offer price is roughly 49% higher than the price last Oct. 30, the day before the company began its strategic review. But it's down more than 60% from its multiyear high, reached in late 2013.

Rent-A-Center CEO Mitch Fadel sees this transaction as the best course of action: "The Rent-A-Center board, having just completed a comprehensive review of strategic and financial alternatives in consultation with outside legal and financial advisers, unanimously supports this transaction and is confident it maximizes value for stockholders while delivering a significant and immediate cash premium."

Now what

Vintage Capital is also the controlling shareholder in Buddy's Home Furnishings, another rent-to-own retailer. Vintage Capital founder Brian Kahn sees the combination of Buddy's and Rent-A-Center as "a compelling opportunity to utilize our resources and expertise to enhance value and create a leader in the rent-to-own industry."

Whether Vintage Capital will be able to turn around Rent-A-Center, which posted a revenue decline and a net loss last year, is an open question. The deal is expected to close by the end of 2018.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Rent-A-Center, Inc. Stock Quote
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